It’s not hard to figure out why a property has a high market value, especially if you have the qualities of a real estate investor. But what happens to the properties that sell for less than their owners have paid for them? Well, in real estate, not everybody is a winner. And the reasons are below:
Homeowners who neglect their duties and don’t stick to a proper home maintenance checklist will end up with a property full of defects and problems. Leaking faucets and missing roof shingles make any real estate agent cut into the price of the home with no mercy. Keeping the house clean is an everyday job. Landscaping is also important to improve your house’s curb appeal. A house that looks abandoned or haunted is not going to attract buyers and will sell for a lot less.
Residential, commercial, or mixed use? Local authorities can change the zoning without the homeowner’s consent. The worst that can happen? To find yourself living in an industrial zone - that’s the worst scenario for the value of your property. In an industrial area, existing properties, as well as vacant land, sell for less. Ideally, you want your house to be in a residential zone.
When inflation is high, we lose the most. One dollar is actually worth less than its face value. Inflation makes houses’ value vary. So when banks lend money easily, with fewer restriction, they increase the money supply in the economy and people are willing to pay more for the house or their dreams and consequently, real estate becomes more expansive. As soon as banks increase the interest rate, money doesn’t come easy which means there are fewer borrowers and they will most likely negotiate a low price for their homes.
When the job landscape is voided of big employers, unemployment is on the rise. What keeps people in one place? Mainly their jobs. People can’t survive for too long without a decent income, so unemployment forces people to move in other regions. The more houses for sale in a certain market, the lower the prices will be.
Wildfires, tornadoes, floods, landslides - all acts of God have a huge impact on real estate. When a house is destroyed, only house flippers might be interested in it. They buy these properties with loose change and sell them later for a huge profit.
When homeowners quit paying their loans, they may lose their properties. Some people try to avoid foreclosure by short-selling their property, which means that the selling price will not cover the outstanding balance. In other cases, properties get sold at auction. Real estate auctions are tough and are a niche for real estate investors. Most properties sold during a real estate auction are below the market price. However, investors must do their due diligence to find everything they can about a distressed property because real estate disclosure laws don’t force the banks to disclose any issues.
These are the main reasons why property values drop. Someone’s loss becomes someone else's gain. This is how real estate works.