Buying or selling a home can be a stressful, taxing endeavor. After all, it's one of the biggest investments and decisions you make during their lifetime.
Selling a home is also anxiety-inducing because it often means the seller is looking to make a profit to put towards another home or needs to rid themselves of the financial burden that homes can often become.
Essentially, panic selling in real estate occurs when an investor or homeowner offloads one or multiple properties quickly, and often for less than market value. The panic is often incited by an economic or emotional, wide-spread incident.
Multiple homeowners will begin selling their homes, increasing the inventory, and driving prices down further. Here's what you need to know about panic selling.
Panic Selling Can Negatively Affect Sellers
For homeowners, panic selling is often prompted by blockbusting. A realtor or investor will knock on doors to advise current residents that social groups, usually of a different race, religion, or ethnicity, are purchasing property in the surrounding area. The realtor or investor is hoping to scare homeowners into offloading property for less than market value.
This discriminatory tactic originated around WWI, when black southerners moved north. Crooked real estate agents attempted to make money through panic peddling to white northerners. The dishonest agent could then make a commission from the seller, the buyer, and the seller again when they purchased another home.
As for the rest of the neighborhood, when more homeowners put their houses on the market, increasing inventory, other homes would be valued for less. Not wanting to lose money, more homeowners would list their houses hoping to get out of the area before home values dropped further.
Sellers can also panic sell when a financial shift sets the stock market on a sharp, downward trend. They will also start offloading if investment properties that rely on natural resources, like a lake or ocean home, begin to lack those resources.
Buyers Benefit from Market Drops
During a panic selling spree, would-be buyers can benefit from a plethora of inventory and low prices. Short-term financial drops or slow seasons are great times to buy as the property is likely to increase in value after the lull.
The final price tag and net profits are rarely considered during a panic sell. The homeowner simply does not want to be upside down on the home or is unwilling to continue to lose money on it. The fear of lost equity forces many sellers to accept extremely low offers. Meaning the buyer may score a home worth way more than they paid for it.
Buying a home during a panic selling spree is a good move if the home buyer is simply seeking a place to live, not to make a profit from flipping or reselling in a shortened time frame.
Investors Should Play it Safe
Investors that make their money through real estate transactions such as renting vacation and residential property or by flipping homes are more affected by the housing and stock markets. When markets tank and stay down, so does their ability to rent the home for top dollar.
Vacation rentals often rely on the economic health of the town. In a bad snow year, ski homes can sit vacant and cost the owner thousands in maintenance, taxes, and mortgage payments.
The same goes for summer-time rentals. Small towns ebb and flow with the weather and the nation's economic status. In growth years, more people vacation whereas in down years, many opt to stay home or travel close by.
Real estate investors also often look to snatch up homes, renovate, and resell quickly to make money for their next flip. While a down market is a great time to buy a home to flip, it can make the resale difficult. Investors can get stuck with multiple homes lingering on the market or are forced to accept low-ball offers.
Identify a Panic Selling Situation
Pay attention to the stock market and real estate prices in your area. If you're a real estate investor looking to snatch up some vacation properties, pay attention to the weather, climate shifts, and natural disasters.
Commonly, vacation properties are in places that are more susceptible to climate shifts and natural disasters. The price of beach-front properties and mountain homes can drop suddenly if the environment around the home changes.
Property owners can benefit by holding on to their home through a panic selling situation. Consider if the sudden influx of local home sales was prompted by an economic downturn.
If you plan on living in your home long term, hold on to the home and don't panic sell it off. The general real estate market trends upward over time, even through panic selling situations.
Blockbusting Is Illegal
Under the Federal Fair Housing Act, it is illegal for a realtor to suggest that citizens of a protected class will change the neighborhood by moving to it. Don't get triggered by realtors that suggest you sell because your community is changing.
Report realtors who knock on your door and attempt blockbusting to their managing broker or the National Association of Realtors.
A panic selling situation is often difficult to determine. Consult a Clever Partner Agent if you're looking to buy, sell, or invest. Our experienced realtors work in the clients best interest and will never force a homeowner to sell or buy if the time is not right. [popup-modal text=“Contact Clever”] to speak with a trustworthy Partner Agent in your area.