Buyer’s market vs. seller’s market in real estate, explained
When dipping your toes in the real estate market, an early distinction to learn is the difference between a buyer's market and seller's market. Put simply, a buyer's market typically favors those searching for properties while a seller's market may mean property sellers have certain advantages. Let’s learn a little more about the concept of a buyer's market vs. seller's market and ways to use this knowledge.
What is a buyer's market?
In real estate, “buyer's market” is a term applied to market conditions that favor prospective homebuyers. A buyer's market typically arises when the supply of properties for sale exceeds demand — in other words, when more homes are available than there are people looking to buy. This oversupply can be due to various factors, such as economic trends, interest rates and even the time of year.
What is a seller's market?
A seller’s market, on the other hand, occurs when the demand for homes exceeds the available supply, often quite a bit, benefiting sellers instead of buyers. A seller’s market could be triggered by things like robust economic growth, low mortgage rates or a simple shortage of desirable properties in a certain location.
Is it a buyer’s market or a seller’s market?
Knowing which market you’re currently navigating is as important as understanding how each type of market works. Let’s look at how to interpret the signs so you might accurately answer the question, “Is it a buyer’s market or a seller’s market?”
Inventory: A high inventory of homes for sale, particularly those at seem to have been on the market for longer than usual, often signifies a buyer’s market. On the flip side, a low inventory where homes are selling quickly might mean more competition for buyers, signaling a seller’s market.
Pricing trends: If home prices are gradually decreasing, this could indicate sellers are competing for a relatively lower number of buyers and that you’re in a buyer’s market. However, if prices are rising, it could be a sign that a seller’s market is forming.
Local economic indicators: The health of the local economy can impact your real estate market. Factors such as especially strong employment rates or a boom in new construction can drive housing demand, potentially creating a seller’s market.
Impact of market conditions on home prices
To help navigate either domain, let’s take a look at how either set of market conditions might affect the dynamics of buying and selling houses as well as some strategies and considerations for buyers and sellers.
Impact of a seller’s market
A seller’s market can often push properties to fetch top dollar on market value. Due to the high demand and limited supply, potential buyers may be forced to compete for available properties. In a seller’s market, multiple offers are common, and properties may sell at or above their asking price. Due to these favorable conditions, sellers may be less inclined to agree to concessions like repairs or covering closing costs, knowing there are other eager buyers in the wings.
Tips for sellers in a seller’s market
If you’re selling your home in such a market, you might consider:
Pricing your home competitively to attract multiple offers. Even in a seller’s market, it is possible to overvalue the property and deter potential buyers, but underpricing means unrealized gains. A competitive price may even invite the potential for a bidding war.
Staging your home to maximize its curb appeal.
Being ready to move fast if the right offer comes through.
Standing firm on negotiations and concessions beyond price.
Tips for buyers in a seller’s market
If you’re a buyer, you may need to act quickly and be ready to make competitive offers to land the home you want. This could mean:
Getting pre-approved for a mortgage to show sellers you’re a serious buyer, and to help you determine what you can afford and what properties would fit your needs.
Making strong, competitive offers on properties you’re interested in. Limiting contingencies may also help sweeten the deal for sellers.
Being prepared to move fast, especially in potential bidding wars by staying flexible with your terms.
Putting an escalation clause on your offer, which allows you to increase your offer in response to a higher bid so it remains competitive in case another one comes in.
Impact of a buyer’s market
In a buyer’s market, the surplus of properties on the market can put downward pressure on prices. This could give potential buyers more room for negotiation when it comes to purchase price and terms.
Tips for buyers in a buyer’s market
If you’re a buyer, you could consider:
Taking more time to more thoroughly research and explore your options thanks to a slower market.
Getting pre-approved for a mortgage. Even in a buyer’s market, it helps to show you’re serious about buying a home.
Negotiating for a lower price or making a contingent offer based on further concessions such as repairs or seller-paid closing costs.
Tips for sellers in a buyer’s market
If you’re selling your home, however, you may need to consider:
Pricing your home more attractively or offering added incentives to stand out from the surplus of listings. A professional appraisal may help you ensure that you’re still priced competitively.
Preparing the property for sale by maximizing its curb appeal and potentially conducting any repairs or renovations that could add further value and appeal.
Being more flexible in your negotiating, potentially offering some concessions to nudge the buyer along.
Being patient. Selling a home can take time, especially in a buyer’s market. If your situation allows, it may be best to wait it out rather than accept a low offer. Alternatively, you could also consider renting, which also provides some extra income in the meantime.
In summary
Grasping the concept of buyer's market vs. seller's market can be a helpful tool to add to your real estate toolkit. These market conditions, each offering a unique set of opportunities and challenges, play an influential role in both property pricing and negotiation strategies. Whether you're ready to find your dream home or sell for a top price, understanding the market's directional swings and seasons could help inform your strategy. When navigating the market, knowledge is your friend. Remember, readiness is more than just finding your forever home, it’s about getting prepared for when the perfect opportunity presents itself.
