Regardless of what we are buying, we want to get the best deal possible on our purchases. Yet so few actually do, especially when it comes to real estate. There are two key reasons for this -- people do not know or understand the buying cycles and they do not know how to test sellers.
We will address both of these issues starting with understanding the buying cycles. We have all heard of the principle of supply and demand. When supply is low and demand is high, prices go up and vice versa.
Over the past five years, the demand for real estate has been extremely high, and it has been virtually impossible for buyers to negotiate with sellers. Instead, multiple offers and buyers have been competing and paying way over asking price.
Now let me ask you, if you paid way over market due to a lot of competing offers, did you get a good deal?
The obvious answer is no. But, because most people believe that a strong market climate is the right time to buy, they rarely get a screaming deal. The time to buy is when competition is low, not high. The chart below reflects the sales price and sales volume during the course of the year and for the past five years. What you will notice is prices move up and down with great predictability due to seasonal market demand. So, if we all want a great price, why do most people buy when demand and prices are at their highest?
Because they don’t know any better! They just follow the groupthink, “spring and summer are the best times of the year to buy real estate.” Consequently, they rarely get a screaming deal.
The time to buy is when demand is low, NOT high!
Let’s say ten sellers are selling a similar product, in similar condition, in the same market...which seller is going to sell their product at the lowest price?
The one that needs the money the most! The motivation for each seller is dramatically different. Some do not need to sell and are only on the market to see if they can get a great sales price while other sellers MUST sell for financial reasons. The greater the urgency, the greater the opportunity to get a screaming deal.
The formula is to buy when demand is low, and then to identify sellers that have been on the market for at least 30 days. An urgent seller will be in panic mode after 30 days while sellers that have been on the market for 180 days or more are rarely motivated to sell. The worst time of the year to buy and get a screaming deal, spring and summer, are coming to an end. Add to that, a fear of another economic meltdown, and you have the best opportunity in years to negotiate a screaming deal!