What Is Panic Selling in Real Estate?
When it comes to being a homeowner or potential home seller, emotions can run high, especially during uncertain times. You may have heard the phrase “panic selling” or seen it in headlines over the years. But what exactly is panic selling when it comes to the housing market?
Panic selling in real estate occurs when sellers rush to offload their properties due to fear or anxiety about market conditions. Understanding what drives this behavior and its effects can help you make more informed decisions and avoid costly mistakes.
What is panic selling in real estate?
Panic selling in real estate refers to the rapid sale of properties by owners who fear that the market will decline significantly. This type of selling is often driven by emotions rather than sound financial reasoning. When sellers act on panic, they typically accept lower prices than their property’s worth, leading to potential financial losses.
“These sellers think that the market is going to take a turn,” says Rupesh Patel, a top South Carolina real estate agent with more than 15 years of experience. “They start putting their homes on the market for less than the value of the property.”
Panic selling can create a domino effect, where multiple sellers rush to list their homes, flooding the market and driving prices down further.
What can trigger panic selling in real estate?
Here’s a brief look at seven scenarios that can lead to widespread panic selling in the real estate market:
1. Economic downturns
A recession or significant economic downturn can cause widespread fear, leading homeowners to sell their properties quickly to avoid potential losses.
2. Fear of imminent economic crisis
Rumors or predictions of an impending economic crisis can spur panic selling as owners rush to liquidate assets before a perceived market collapse.
3. Events that shake investor confidence
Events such as stock market crashes or major financial scandals can erode investor confidence, prompting a sell-off in the real estate market.
4. Overvaluation
When properties are perceived to be overvalued, sellers may panic and try to sell before prices correct themselves, fearing they won’t get as much later on.
5. Natural disasters
Natural disasters like hurricanes, earthquakes, or floods can lead to panic selling, especially in areas prone to such events. Homeowners may seek to move to safer locations quickly.
6. Terrorist attacks
Terrorist attacks can cause immediate panic and uncertainty, leading to a swift sell-off in affected areas as people prioritize safety and security.
7. Illegal blockbusting
In some cases, unethical practices like blockbusting, where homeowners are pressured to sell quickly due to fabricated fears, can lead to panic selling.
Who is impacted by panic selling in real estate?
Panic selling affects various stakeholders in the real estate market, but typically, home sellers have the most to lose. However, Patel says that does not have to be the case.
“A good professional agent will be able to explain the current market conditions in the area and what the homes are selling for,” he says. “They can give the homeowner confidence, knowing that the market is still good and that the seller can still sell the home at full market value.”
Here’s how different groups are impacted by panic selling:
Sellers
Sellers are often the most directly affected, as panic selling can force them to accept lower offers, resulting in financial losses.
Buyers
Buyers might benefit from lower prices during panic selling phases, but they also face uncertainty about the market’s future stability.
Regular homeowners
Even if they aren’t selling, regular homeowners can see their property values drop due to the increased supply and lower market prices.
Investors
Real estate investors may experience both risks and opportunities during panic selling periods. While some may find bargain deals, others could see their investments devalue.
“If people panic sell, it drives down the average pricing in the area, and this affects comp (comparable sales) values,” Patel explains. “The best way to mitigate this is to make sure that the consumer who sells their house is getting the right information, and the person who they’re hiring [as an agent] has the right experience and market knowledge to effectively represent them so that the values are maintained.”
