Many analysts expected a downturn in the US real estate market in 2020. With the country losing almost a third of its GDP and unemployment reaching historic highs, how could it not happen? Yet, despite all that, the stock markets and real estate have remained largely intact. But just because real estate is still solid doesn’t mean a recession won’t come. Recessions are a natural part of the economic cycle, and any real estate investor should be prepared for the circumstances a recession creates.
Recessions don’t typically occur around a time of property market optimism. In real estate, a recession will inevitably come with a copious amount of properties for sale. As new opportunities for you to buy a cheap house arise, it’s still important to show restraint.
A Buyer’s Market
If you have the cash, a recession may seem like a great time to buy a house. Recessions also tend to drive down interest rates, making buying a house an even better investment. Short and long-term costs are driven down around the same time.
If you want to cash in on a recession, you have several advantages you should understand and take advantage of.
The Negotiation Edge Goes To You
Recessions create a bad environment for many homeowners, but also for many realtors. During these times, many agents and firms will reduce their commission so they can help their clients get the deal completed. Sellers will usually increase their prices so they can pay the commission and still profit.
Now, as the buyer, the seller’s agent’s commission probably won’t seem relevant to you. However, your agent can still ask the seller’s agent to lower their commission to hurry the process up and end with a better deal for everyone.
Usually, negotiation processes are simpler with smaller organizations because they have less bureaucracy to overcome. But if you’re having a hard time with one agent, you can always find one more willing to negotiate.
Personal relationships are still important. You’re more likely to get a good deal if you use the same agent you use to sell your property to buy other properties. While that’s not always possible, it’s still a good thing to remember.
During a recession, many homeowners feel the heat and want to sell their homes as fast as possible. It’s your job to look out for the sellers who are ready to sell soon.
When the seller is in a rush, you can often negotiate a better deal for yourself, and quickly. You can ask them to throw in some extra amenities, like furniture, or whatever you like that’s within reason. You can also ask them to cover the closing costs if you’re willing to buy right away.
While you can’t see every sellers’ face, you can look for a few signs that they’re keen to sell. If their home has been listed for months and had its price cut a few times, the seller is probably keen to close a deal. Also, if the seller’s house is empty at the showing, it’s likely they’ve already moved out and possibly have two mortgages. If so, they might be in a rush to eliminate one of them.
Don’t Delay On A Great Buy
Even though we’re describing a buyer’s market, you can’t delay it for too long. Even if you have a keen seller who’s offering you a great deal, you could lose the opportunity to another sharp buyer if you wait too long.
Words Of Warning
While recessions offer buyers opportunities, there are a few things you’ll need to watch out for.
You Still Need To Punch Your Numbers
You may have a great opportunity hanging right in front of you. But you still need to make sure you can afford the investment you’re considering buying. You should show no less due diligence than you would during a seller’s market. In fact, you’ll just need to be faster at it during a recession so you don’t lose a great opportunity to another buyer.
Is The Title Clear?
Many stressed-out sellers are in a rush to drop their home during a recession. Sometimes, the seller might have a lien from their lender.
To avoid trouble, you should have a title search conducted by a lawyer so ownership can be transferred without risk. Absorbing the liabilities of a homeowner in hot water is the last thing you need.
Lenders will usually require a title search to be conducted. But if you’re offering cash, you should remember to have a title search done or you could easily end up with the short end of the stick.
Bidding Battles Are Not Good
Bidding wars are often a huge waste of time. They also often lead to you spending more money than you should on a property.
If you want to place a bid, the best thing you can do is set a solid limit that you will not exceed under any circumstances.
All in all, a recession creates a buyer’s market. The circumstances under which you can buy a new property are in your favor. You have plenty of negotiating power, but there are still a few things you should look out for. If you stay diligent and act quickly, you can do well for yourself. Don’t worry about backing out of a bad deal.
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