Remember 2021 and 2022? If you were buying multifamily back then, you know exactly what I'm talking about.
Peak of that era, it was standard for deals to go under contract with buyers offering extremely competitive terms; high earnest money deposits, minimal contingencies, and obviously, aggressive pricing.
This trend continued even as the market started to adjust because buyers were so used to aggressive terms. They were trained to do it that way since that was the only way to win deals for years.
But here's what we're seeing in the marketplace right now on the deals we're pursuing:
Fewer offers per deal
On a typical brokered deal, there are simply fewer offers compared to when deals were listed from 2020 to 2023. We've noticed this trend both as a buyer and as a seller of many properties; it's reflected in a lower number of offers on deals that were similar to those we sold a few years earlier.
More deals falling out of contract
Buyers are becoming much more rigid on what they're willing to accept throughout the transaction process. This didn't used to be the case. Dropping a deal meant you were probably going to ruin a relationship with a broker, and so many buyers ended up buying deals they normally would have dropped in a healthy market.
Now, buyers are becoming much more diligent about not getting into questionable or borderline deals.
More buyer-friendly terms
We're seeing more financing contingencies, lengthier contingency periods, and in general, just more buyer-friendly contracts than in years past.
Why is this happening?
All of this is basically compensating buyers for the risk they see in the marketplace right now.
Rents are not growing at the same rate they have... in many markets, they're flatlining. It's becoming much harder to project both income and expenses moving forward. And there are just fewer buyers competing with each other than there were for the last four or five years.
Bottom line: If you're a buyer pursuing brokered deals, you don't necessarily need to take the same aggressive approach from a terms standpoint as you may have in years past.
While the market remains healthy (more so in some regions than others) and a large number of multifamily buyers are pursuing deals, it's not quite the same dynamic as what we saw during the five-plus-year stretch leading up to 2024.