There are many reasons why real estate sales prices may fall, but the biggest reason is when supply and demand are out of balance. Regardless of real estate, if the demand is high, the price goes up, and if not, the price goes down. However, real estate is one-of-a-kind item, and if the real estate has a scarcity value, the price will equilibrate, or the pace of price decline will slow.
So from the standpoint of the seller, we would like to explain why the real estate is sold and why the price is lowered. Except for special cases such as auctions, the reason for selling real estate is because it is no longer used, sell it because it is not essential and can be sold high in the market, sell it because cash is absolutely necessary, sell real estate to relocate assets, or sell the real estate that was purchased to sell at a high price from the beginning. Let's look at each case.
Sell real estate because the seller doesn't use it
If the seller already owns his or her own residential property, but the property is acquired through inheritance, what will happen to the property? In the case of real estate inherited from their parents, they may have lived in their childhood. In that case, the building is probably over 50 years old. If demand for leasing is expected, it can be renovated and held as rent. However, if the refurbishment costs a lot of money, it will inevitably proceed to sale.
The owner does not necessarily have to own the real estate and sells because it seems that it can sell high in the market
If the owner finds that the property he/she is not planning to sell can actually be sold at a high price, if there is no compelling reason to own it, then owner sells the property.
Owner sells real estate for cash
It's similar to an auction of real estate, but if the owner can't afford to repay the loan or needs a lot of cash, owner sells own real estate and cashes it out.
Sell real estate to relocate assets
When an investor owns real estate for profit, it may replace the real estate after the end of its useful life. In this case, the real estate may be sold at a time when the yield decreases or the buyer's loan is easy to obtain.
Sell the real estate owner bought to sell at a high price from the beginning
This is a case where a real estate agent mainly sells as a business. For example, real estate purchased at a low price may be sold at a high price by resale, or real estate may be sold with added value such as renovation.
Then, which of the above is the case where owner have to sell the real estate even if they lower the price?
The seller who bought the real estate for resale originally wants to sell it first. There is no purpose in owning real estate, and the difference between the amount sold, the amount purchased and the amount renovated is a profit, and they operate the business by increasing the turnover ratio of purchase and resale. Therefore, it is easy to operate the business in the environment where the price is rising, but in a recession, the profit margin decreases and the turnover rate decreases, which makes it difficult to operate the business. Since there are many cases where real estate is purchased using loans, considering the interest rate burden, it is a good idea to let go at the price and timing when they can sell.
Secondly, the seller who really needed cash, hurries to sell it, but there is always a price floor. Since the purpose of the sale is to cash the real estate and use it for payment, the price of cash in hand after paying the necessary expenses is the most important. In this case, the real estate is sold to the real estate agent. The price will be cheaper if agent buy it directly from the owner, but owner can get cash on the same day. Real estate agents do not care about things that general buyers are concerned about, such as defects in real estate. Therefore, here is the reason why real estate that does not appear in the table can buy at low cost by real estate agent.
Next is a seller who will never use the real estate owned by inheritance. In this case, the real estate that is three or five years old from the inheritance is put up for sale in the market. Some real estate agents subscribe to a list of owners of real estate whose inheritance has changed, and they will send a letter to the new owner of the listing to appraise the sale. By sending a letter to the owner who is considering how to use the real estate, new owners feel like trying to sell at the assessed amount once. In this way, inherited real estate is often sold on the market.
Sellers wishing to relocate their assets will consider lowering the price or suspending the sale. If the investor owns multiple real estate, owner will try to improve the financial condition by relocating to a more profitable real estate. They don't necessarily have to sell it, but in future plans, they will sell it at a convenient time.
And the seller who originally did not need to sell, but tried to sell at a high price, would either hold the sale itself or keep the price and sell when a good buyer appears. In this case, the purpose is to sell the real estate at the desired price, so there is no need or reason to reduce the price.
The price of real estate is formed by a mixture of the purpose of selling such real estate and the reason for lowering the price. On our real estate sales site, we will update the property whose price has dropped by dividing it into a new category. If you are interested in the trend of price cut real estate, please check here.
In some cases, the price of real estate will drop due to the impact of COVID-19, but in many cases the price will not change at all depending on the purpose and reason of the sale. The price reduction of real estate starts from the seller who wants to sell the real estate in a hurry, but the price depends on the seller's financing strength. If you have any questions or if you are considering selling real estate, please contact us.
Arrows International Realty Corp.