It’s a tough market for buyers. Many feel they are buying at the top of the market and that makes them feel nervous.

Of course, people have been telling me it’s the top of the market for 5 years and so far that’s been a losing bet. However, we know real estate moves in cycles and at some point there will be a downturn in the market. Here are a few tips to help protect you from a downturn when it inevitably happens.

Avoid Homes Missing Important Features

Something that makes real estate challenging is comparing homes that aren’t exactly the same. Many buyers get so focused on the size of the home and $/SF they don’t remember you live in the floor plan and not the size of the home.

Yesterday I met clients at a very nice home. From a $/SF standpoint it is in line with a couple other homes that recently went under contract.  On paper this home seemed like a good price. Because we are out in the market every day I saw both of those homes and am familiar with the floor plans. What I know is both of those homes had important features lacking in this home; full bath downstairs, dedicated office and larger lots. None of those items show up in a $/SF comparison.

Today when there is only one home to choose from this home will sell for a good price. When there is a downturn in the market and buyers have 10 homes to choose from it will not sell at a price comparable to the other more upgraded homes.

These buyers decided to pass on this home and feel it makes sense to wait and spend a little more to get the features that will defend them better when there is a market downturn.

Be Careful Buying The Runt Of The Litter

There is a real estate saying that you want to buy the worst home in a good neighborhood. This isn’t always true and I especially see this when buying new construction.

In any neighborhood there will be good lots and less desirable lots. When it comes to new construction, builders will often discount the less desirable lots or the spec homes that have been built.

When buyers compare homes and lot prices and see the discount they think they are getting a good deal. Often, the discount they are getting is not enough to compensate them for the reduction in price they will receive in the future, especially if they have to sell in a downturn.

There are several neighborhoods in the area where builders are selling homes right up against major roads. When you walk the lot it feels like you can touch the highway. People are buying these homes because the market it hot. If these homes have to be sold in a downturn they will not be as attractive and sell for a larger difference than the discount the buyers are receiving today.

Buy Close To Employers

Locations close to major employers with schools highly regarded by parents will give you some insurance when there is a downturn.

A large portion of real estate appreciation has to do with job growth. Buying a home in an area where other people with high incomes are moving to with help insulate you from a drop in the market. When we see steep drops in market value it’s often in areas where people are forced to move to relocate for a new job. One of the great things about our area is there are so many employers if there is a downturn and someone loses their job they may have others to choose from without needing to move.

Buy In An Area With Good Schools

Good schools are attractive to parents. Parents will still value education when there is a downturn. When there are more homes for sale in a downturn it is reasonable to expect parents will choose a home with what they consider better schools.

After Buying Don’t Spend Money In The Wrong Places

When you buy a home it’s easy to get caught up in wanting to do lots of home improvement projects. There are some projects that will give you a better ROI and some projects where a buyer won’t pay you anything additional for all the money you spent. If you are concerned about buying at the top of the market, don’t make risky home improvements that won’t add value. What may happen is if you need to sell and you’ve put a lot of money into the house you will be tempted to overprice your home. That will cause your home to sit on the market. In a market downturn homes that have been on the market for an extended period of time will sell for even less.

We are fortunate to live in an area where real estate is in demand. Because real estate goes in cycles that may not always be true. If you are planning to buy a home in today’s market contact us at  512-791-7473 . We can help you buy a home that isn’t just great for today but also good if you need to sell when we aren’t at the top of the market.

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Posted by Eric Peterson on


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