Buyer’s Market vs. Seller’s Market
One of the questions real estate agents get asked is whether it is a buyer’s or seller’s market.
A buyer’s market is characterized by high inventory and lower demand for housing. A seller’s market is just the opposite. There is low inventory and high demand.
Over the last few years, it has been an extreme seller’s market characterized by ultra-low inventory and numerous bidding wars.
Real estate market conditions don’t stay the same and will affect how easy it is to buy and sell a home. While the spring and summer months see more real estate transactions, this isn’t the most prominent factor changing the market.
Real Estate markets are shaped by numerous factors, including the general economy, mortgage interest rates, the rate of new building, the stock market, and most importantly, supply and demand.
Everyone needs to remember that all real estate is local. What may be happening in one market could be completely different in another.
It isn’t necessarily obvious what is happening in the local market, but it will make a significant difference when buying or selling. A skilled local real estate agent will be able to provide guidance.
Understanding the current market for real estate will help you decide if now is the time to buy or sell. But is your local area experiencing a buyer’s or seller’s market?
If you aren’t sure if it is a buyer or seller market or even what these terms mean, don’t worry; you’ve come to the right place.
What is a Buyer’s Market?
If more homes are available than buyers, the buyer has more leverage to get the deal they want.
A buyer’s market means sellers must try harder to sell their homes because there is more supply than demand. Typically, prices will be lower, and houses will remain unsold for longer.
In a buyers market, sellers compete against a higher percentage of sellers, making them more willing to give way in negotiations with potential buyers.
Sellers might also drop the price they are asking for more readily and go further to ensure the buyer doesn’t disappear.
Price drops become even more common when a mild buyer’s market becomes weaker.
How a Buyer Can Take Advantage of a Buyer’s Market
If you are looking for a home in a buyer’s market, it is the best situation. You should get more for your money, with less chance that you will be competing with others for the home.
With fewer buyers around, you can take more time to find the home that is right for you. You can see more homes before deciding, letting you understand what’s available and helping you negotiate from an informed position.
To help you negotiate further, looking at comps (comparable properties) will give you more information about the prices in the area. You can look for similar properties or ask your real estate agent to assist you in finding and analyzing comparables in the Multiple Listing Service (MLS).
If there are many similar properties to the home you are interested in, are they priced higher or lower? If you find a pattern of similar homes that are lower in price, it gives you the evidence to offer a lower bid to the seller.
Check how long the home has been on the market. The more days on the market, the greater the chance that the seller will be open to accepting a lower bid. As well as a lower price, you could ask for some seller’s concessions, contingencies, or require more repairs to the home.
You may even be able to get a home sale contingency accepted in a buyer’s market or a kick-out clause.
More Negotiations at a Home Inspection
One very apparent difference when going from a seller’s market to a buyer’s market is home inspection negotiations.
When a real estate market favors buyers, the house inspection will become far more negotiable. Home sellers will be forced into making repairs or giving buyers credits to keep a sale together.
While there are no mandatory home inspection repairs, putting a house back on the market due to inspection issues is never good. Negotiating inspection issues gets put back on the table as a routine part of a real estate agent’s job description.
Sellers will need to be more flexible.
What Can a Seller Do in a Buyer’s Market?
Selling your home in a buyers market will be more complex, and you will have to work harder to get your home noticed and sold.
To give your home the best chance of finding a buyer, it needs to appear better than other homes available.
Potential buyers need to imagine themselves living in the home, so everything you can do to depersonalize, the better.
Any personal items and family photos should be put away.
De-clutter and Repair Problems
Clear out any clutter and deep clean the home. A clean house will give buyers a better impression and improve the chances that they will begin to see themselves living there.
Some folks with too much stuff will consider renting a self-storage unit or getting a portable storage unit for their yard.
Consider donating furniture when it impedes a buyer from seeing the home in its best light.
If you know some repairs are needed to the property, take care of them. Even more minor repairs should be fixed before the home is listed.
Buyers can afford to be more selective, so don’t leave anything outstanding that could put them off.
The closer you can get to a turnkey home, the better.
Proper Pricing is Critical in Buyer’s Markets
Pricing your home is always important, but in a buyer’s market, you must ensure it is competitively priced.
It would be best if you positioned your home at the same level or slightly lower priced relative to comparable homes. It is crucial to thoroughly examine the comparative market analysis the real estate agent provides. Look at the evaluation through the eyes of a potential buyer.
Marketing is More Vital
Marketing becomes more crucial when there are fewer buyers around. Professional photos and staging the home become more important. It would help if you made the most of your presentation. Making your home stand out from the competition is vital.
When you receive an offer, don’t be surprised if it is lower than expected. Low ball offers become more common in down markets.
You will have less room to negotiate for the things you want, and you might need to offer concessions to the buyer. Settlements could include paying some of the buyer’s closing costs and dealing with even the most minor repair issues.
What’s a Seller’s Market?
It is a seller’s market with more buyers but not enough homes. With less real estate inventory available, and more competition between buyers, sellers are in a more powerful position.
Homes will not be on the market for long, and prices will rise. Buyers must be ready to spend more to secure the house they want.
A seller’s market allows someone selling their home the opportunity to ask for more money. A seller will also have a better chance to sell their house as-is.
With more buyers than sellers, bidding wars are more likely. Buyers will compete, increasing their offers above where the seller sets the price.
What Should a Buyer Do in a Seller’s Market?
If you are trying to buy a home in a seller’s market, you must move quickly and possibly change your expectations.
The nature of the seller’s market doesn’t give you the luxury to take your time. You will need to decide quickly if you find a home you like. If you take a day or two to choose, you might find the house already has a buyer.
Since you won’t have much time, you need to ensure you can get the financing you need. Getting preapproved will show you exactly how much money you can offer and could put you in a better position than other buyers.
In a seller’s market, buyers need to be more flexible. While you might have an ideal closing date or want certain contingencies like a home inspection, you might have to forgo most of these.
Narrow down the essential things you need and only ask for those. Though, even then, it might be better to drop these to prevent losing the home.
Cash Becomes King in Seller’s Markets
Sellers are more likely to go for cash offers. It reduces the chance of the deal falling apart because of financing problems and should mean closing faster. If you can offer cash, sellers will look more favorably on your offer.
If you can’t pay cash, add an appraisal gap clause, which will assure the seller that there won’t be an appraisal issue.
Don’t be surprised if you lose out on homes you like. With many more buyers than sellers, it can be easy to become disheartened. But if you are patient, you will eventually get the home you want.
Frustration with the lack of progress can lead to making costly mistakes. If you get into a bidding war with other buyers, it is easy to bid more than the home is worth or more than you can afford. Overspending could put you in financial trouble in the future.
Missing out on homes you want can also push you to make offers on homes that aren’t right for you. Homes you wouldn’t take a second look at in a buyer’s market might get your attention if you are tired of missing out on properties you love.
It shouldn’t be forgotten that buying a home is a serious commitment, and you shouldn’t just jump at any available home. If finding a place to live is more important than the home itself, then perhaps this is alright, but otherwise, waiting for the market conditions to change will be better.
How a Seller Can Make the Most of a Seller’s Market
Even in a seller’s market, you must compete for buyers with other sellers. So, while it is easier to find buyers, you should still try to make your home more attractive.
Decluttering and cleaning your home before listing will encourage more interest in the property. Make sure the house is organized so that it looks its best before potential buyers are shown around.
Despite more buyers, it isn’t necessarily a good idea to price your home higher than comparables. If the price is set slightly lower, it should attract more interest. An attractive price might increase the chance of a bidding war between buyers. When that happens, the price is often driven up considerably.
A seller’s market should mean more offers, but it might not be the best choice to simply go for the highest bid. Though you will want to sell your home for as much as you can, checking the buyer’s financial standing could be crucial.
Try to Get an Appraisal Waiver
Mortgage lenders will not lend more than the home is worth, so if the highest offer is above the appraised value, there could be problems. The deal could fall apart, leaving you to put your home back on the market. When possible, look to get the buyer to waive their bank appraisal.
The more time a home is on the market, the more buyers will question why. It could reduce the final price you receive or make negotiating more difficult.
Offers could also include contingencies and other requirements that could slow the sale. Contingencies will allow the buyer to back out of the deal in certain circumstances, so if a higher offer has these, it might be a reason not to choose that buyer.
Most buyers will need help from a lender to buy, so it is vital to ensure they have preapproval. A preapproval shouldn’t be confused with pre-qualification, a more limited check on their finances.
With preapproval, the buyer’s credit history is checked and verified, showing more accuracy if they are going to be approved for the loan they need.
Is It a Buyer or Seller Market?
How can you tell if it is a buyer’s or seller’s market?
Before selling your home, you need to understand the area’s current real estate market. Researching conditions will help you discover whether the market favors buyers or sellers.
The number of homes for sale will give a good indication of the situation. If there are many homes on the market in the local area, there is a greater likelihood that it is a buyer’s market. With not many homes available, it could be a seller’s market.
However, to better understand the inventory, take the number of homes currently available and divide that by the number sold during the last month.
If you get an answer under 5, it is a seller’s market. But if it’s higher than 7, buyers likely have the advantage. Anything between those numbers is considered neutral.
High Days on Market and Price Drops Indicate A Buyer’s Market
The number of days homes have been on the market should indicate the situation well. When homes don’t remain on the market for many days, it’s a seller’s market.
If you see homes that have dropped their prices, it could indicate a buyer’s market. Though, sometimes, sellers have higher expectations of the price their home will achieve and have to drop the price even in favorable conditions.
When you check comparable homes and recent sales show they sold above the asking price, this should mean a seller’s market. If homes have sold below the asking price, you could be looking at a buyer’s market.
The market trends in the area should also give you a good idea of the type of market. If prices are rising, it should be a seller’s market. But if they are trending lower, buyers are probably getting better deals.
Market reports can tell you the number of homes currently for sale as well as the median prices for different property types, indicating what the market is presently doing.
While market trends in most parts of the country have been strong seller’s markets, that situation might not stay the same during the rest of 2022.
Real Estate Housing Markets Can Change Quickly
If history is any indication, it is vital to know housing markets can change rapidly. You can go from a hot market with higher home prices to seeing price cuts and home sales declining. Whether you are buying or selling a home, it is vital to respond appropriately.
It is also essential to know your local real estate market may be different from elsewhere. The National news headlines don’t always give an accurate picture of what’s happening locally. The first sign of a changing market will be seeing more housing inventory. You’ll likely see more for-sale signs popping up around your town.
You might also see the initial list price of a home change when it does not sell as quickly as expected. Keep in mind that most of the time, real estate markets don’t just shift from one to another. It will likely be a neutral market first.
The housing supply will be balanced when the number of buyers is in line with the number of sellers.
A balanced market will see home values either go up or down slightly. It will be the kind of market where buyers and sellers are on equal footing. A balanced market is usually an excellent time to buy and sell simultaneously.
As long as mortgage rates do not skyrocket, a neutral market can be good for buyers and sellers. It’s the best time because you can get decent money as a home seller. You also shouldn’t struggle to find a home as a buyer.
Finding your dream home could be much easier without the pressure.
Final Thoughts
Before you begin either looking for a new home or selling your current property, understanding the market conditions is essential. With a better idea of what is happening in the real estate market, you will have the upper hand, giving you a better deal in the transaction.
Are there higher prices or lower prices? Will there be fewer homes in your price range? Are house prices expected to go up or down further? These are the types of questions you may want to have answers to before making a real estate decision.
Speaking to a few real estate professionals will give you a good handle on where the real estate market is headed.
About the author: The above Real Estate information on whether it is a buyer’s or seller’s market was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 35+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Buyers who have been shut out of the market for the past year or so should be on alert, as in many parts of the country the market is shifting and opportunities can arise quickly.