What Is Panic Selling in Real Estate?

Published on May 16th, 2024
7 min read

Richard Haddad Executive Editor
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Richard Haddad Executive Editor

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Richard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.

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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.”

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What factors play a role in housing market corrections?

Housing market corrections occur when property prices adjust to more sustainable levels after a period of rapid growth. Let’s look at some of the factors that can contribute to these corrections.

Growth in GDP

A country’s Gross Domestic Product (GDP) growth directly affects the real estate market. Strong GDP growth typically leads to higher employment rates and increased consumer spending, which can drive up property prices. Conversely, slow or negative GDP growth can signal an impending market correction.

Employment rates

Employment rates play a crucial role in housing market stability. High employment rates generally lead to higher demand for housing as more people can afford to buy homes. On the other hand, rising unemployment can reduce demand, causing prices to drop and prompting a market correction.

Interest rates

Interest rates set by central banks influence mortgage rates, affecting affordability for homebuyers. When interest rates rise, borrowing becomes more expensive, which can reduce demand for homes and trigger a market correction. Conversely, lower interest rates can stimulate demand and drive prices up.

Local market conditions

Local factors, such as population growth, land availability, and economic activity, can significantly impact regional housing markets. Regions experiencing strong job growth and infrastructure development may see rising property prices, while areas facing economic decline may be more susceptible to market corrections.

Examples of major market corrections

1837: The Panic of 1837
1873: The 1873 Stock Market Crash
1929: The Wall Sreet Crash (Great Depression)
2008: The housing bubble burst (after peaking in late 2006)

Warning signs of panic selling in real estate

Here are some panic-selling indicators to watch for to help you avoid making hasty decisions and protect your financial interests:

Sudden increase in property listings: A sharp rise in the number of homes for sale in a short period can signal panic selling, as many homeowners rush to offload their properties.
Significant price reductions: If you notice that many homes in your area are being sold at significantly reduced prices, it could indicate that sellers are panicking and accepting lower offers to sell quickly.
Negative media coverage: Persistent negative news about the economy or housing market can fuel panic among homeowners, leading to increased listings and reduced prices.
Increased days on market: When properties start to stay on the market for longer periods, it may suggest that buyers are hesitant, and sellers are becoming more anxious to sell.
Declining home values: A steady decline in home values over several months can indicate a broader market correction, which might trigger panic selling among homeowners.

Ways to prevent panic selling in real estate

Patel shares a list of ways sellers can avoid falling victim to panic selling.

“If you want to attract and motivate buyers, make sure the property has strong appeal for the buyers that are out there,” he says, adding that even when market conditions may seem wobbly, “This factor still hasn’t changed. Buyers are still wanting to buy a property that has good curb appeal.”

He also cautions sellers about dropping their prices too far or too fast. “Price it strategically, making sure the price of the property is competitive and not overpriced. Oftentimes, it’s best to price the home slightly under the market value,” Patel suggests

Here are some effective strategies to help you stay calm and make informed decisions:

Stay informed: Keep up with reliable news sources and market reports to understand the broader economic context and avoid being swayed by rumors or sensational headlines. Be especially wary of unsubstantiated social media posts.
Work with a trusted real estate agent: A knowledgeable agent can provide valuable insights into the market, help you set realistic expectations, and guide you through the selling process.
Evaluate your financial situation: Assess your financial stability and consider your long-term goals before making any decisions. If your move is not urgent, a top agent can help you determine the best time to sell.
Consider alternative options: If you’re facing financial difficulties, explore alternatives such as refinancing your mortgage, renting out your property, or negotiating with your lender before deciding to sell.
Keep emotions in check: Selling a home is a significant decision, and it’s essential to approach it with a clear, rational mindset. Avoid making impulsive choices based on fear or anxiety.

Find a trusted agent to buy or sell with confidence

A trusted agent can help you understand market trends, set realistic expectations, and develop a strategy tailored to your needs. They can also negotiate on your behalf, ensuring you get the best possible deal whether you’re buying or selling.

Patel sums it up this way: “Most importantly, make sure you’re working with an experienced professional agent to ensure that you’re getting the most amount of money out of your home.”

At HomeLight, our Agent Match platform connects you with the best real estate professionals, tailored to your unique requirements. We analyze over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

If you’re a homeowner facing the buy-sell timing conundrum, HomeLight’s Buy Before You Sell program lets you leverage your home’s equity to avoid the risks of selling under pressure. It’s a modern solution for a smooth, streamlined transition.

Header Image Source: (Toa Heftiba / Unsplash)

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Richard Haddad

Executive Editor

Richard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.