Buyer's market vs. seller's market

When mortgage rates are low, prospective buyers become more motivated to make a move — even when inventory is limited in their area (this indicates a seller's rather than a buyer's market). If you plan to buy a home, it's important to know what these terms mean, which type of market you’re in and what to do when you’re buying or selling a home in either.

Key insights

• In May 2022, 88% of listings were on the market less than one month before being sold, according to a survey by the National Association of Realtors.
• As of March 2022, home prices were up between 19% and 21% from the same time last year, according to the U.S. Department of Housing and Urban Development (HUD).
• Mortgage rates rose sharply through the first half of 2022, countering record lows and somewhat slowing home sales.

Signs you’re in a seller’s market

The clearest indicator that you’re in a seller’s market is that the inventory of available homes for sale is low but the number of buyers looking is high. “I would characterize the last two years as an extreme seller's market,” said Jonathan de Araujo, a licensed real estate agent with Vantage Point Team, a real estate company in Lexington, Massachusetts.

The law of supply and demand can be frustrating when you’re on the buyer’s side of a seller’s market, but it’s a big help if you’re selling your home. In a seller’s market, homes are often snapped up within days of being listed — and sometimes sooner. You’re also more likely to see multiple offers on a property, potentially resulting in bidding wars and homes selling above asking price.

Buying in a seller’s market

If you’re buying in a seller’s market, you want to do everything you can to stand out as a “good” buyer. This means showing the seller you'll be able to make a quick and trouble-free purchase. Keep these tips in mind:

• Get your financing in order: In a hot market with low inventory and tons of demand, it’s imperative that you get preapproved by a lender and are able to show that. Urgency is critical in a seller’s market.
• Consider an offer with few or no contingencies: Real estate deals are commonly contingent on financing, the home’s appraisal or the sale of a prior home. However, sellers generally don’t like these contingencies because they can make the deal fall through. Speak with your real estate professional about which, if any, of these you're comfortable compromising on to sweeten your offer.
• Be patient: When working with buyers in a seller’s market, de Araujo reminds clients that purchasing a home is a good investment regardless of which market you purchase in, so stay the course. Overpaying is a real risk in a seller’s market, so don’t panic.

“Continue to make offers on homes that are a good fit for you,” said de Araujo. “Get a good agent to advise you on the competitive landscape of the market, and be creative with your offers. You need your offer to stand out from the rest.”

Selling in a seller’s market

A seller’s market can be a dream come true when you’re on the right end of the deal. As a seller, your primary goal is to get the best offer on your home. When strategizing with your real estate agent, consider these tips:

• Defer showings: “The best thing a seller can do to dramatically increase their chances of a bidding war is deferred showings,” said Realtor Bill Gassett, a RE/MAX real estate agent with more than 35 years in the real estate industry. He explained that this gives a property greater exposure because more buyers have an opportunity to see the property online and place a bid. “Instead of going the traditional route of listing in MLS and starting showings right away, enter the property into MLS but don't show the house for four to five days.”
• Price fairly: In a seller’s market, a common mistake is for the seller to get overconfident and list at a price far above market value, which can backfire. “The best way to take advantage of a seller's market is to list your home within the range where it belongs compared to other similar homes,” encouraged Chuck Vander Stelt, a real estate agent in Indiana. “The competition amongst active homebuyers who perceive the home as a good value is more likely to deliver a higher price versus listing too high from the start.”
• Present your home in the best possible light: Even if you choose not to stage your home for showings, it’s important to make sure it's clean, well organized and decluttered. You want potential buyers to imagine themselves living there, so it is a good idea to keep personal photos and decor to a minimum. Don’t let a seller’s market make you complacent about presentation.

Signs you’re in a buyer’s market

Though many cities have been in a seller’s market recently, the pendulum will swing in the other direction at some point, and you may find yourself in a buyer’s market. This will be characterized by a larger inventory of homes and properties staying on the market longer. When this happens, you’ll often see price reductions on properties that aren’t garnering a lot of interest and homes selling below their asking prices.

Selling in a buyer’s market

Selling in a buyer’s market can be nerve-wracking. You can still usually sell your home for more than you bought it for, but be realistic with pricing relative to comparable homes in your area. Here are tips to make your home appealing in a competitive market:

• Help buyers imagine themselves there: Present your home as a clean slate to prospective buyers. Fix anything that’s broken, remove as many of your belongings as possible and put a fresh coat of paint on all the interior walls for a bright, clean look.
• Increase the curb appeal: “Plant fresh flowers in your garden,” suggested Bonnie Heatzig, executive director of luxury sales at Douglas Elliman, a real estate company in South Florida. “That first impression when buyers drive up is paramount.”
• Keep it clean: “Organize and edit out the clutter,” Heatzig advised. “This will make your closets and space look larger."

Buying in a buyer’s market

Buying a home in a buyer’s market can be a heady experience, but having a firm idea about what you want and need can help you avoid getting overwhelmed by your options.

• Create a wishlist: In a buyer’s market there's typically a large inventory to choose from, but having a lot of options can be both a blessing and a curse. Define and categorize your preferences and must-haves to help make your purchase decision easier.
• Be selective: “Make sure the home you choose meets all of your criteria,” Heatzig added. “There should be no reason to compromise on your wishlist. With a buyer’s market, you can expect an abundance of inventory and finding that perfect home should be a much easier task.”
• Make note of how long listings have been on the market: You have more negotiating power in a buyer’s market. If a home has had a “For Sale” sign in the front yard for an extended period of time, there’s likely even more wiggle room on its asking price.

Where are the hottest seller’s markets right now?

Realtor.com pinpointed these areas as the 10 hottest housing markets in the U.S. as of May 2022:

• Manchester-Nashua, New Hampshire
• Burlington-South Burlington, Vermont
• Portland-South Portland, Maine
• Concord, New Hampshire
• La Crosse-Onalaska, Wisconsin-Minnesota
• Burlington, North Carolina
• Rochester, New York
• Elkhart-Goshen, Indiana
• Lafayette-West Lafayette, Indiana
• Fort Wayne, Indiana

These rankings were based on a combination of market demand (how many buyers are interested in a given property) and the pace of the market (how long it took homes to sell) in each area.

Where are the hottest buyer’s markets right now?

According to the National Association of Realtors’ 2022 Housing Market Hidden Gems report, these are the most undervalued U.S. real estate markets:

• Daphne-Fairhope-Foley, Alabama
• Huntsville, Alabama
• Fayetteville-Springdale-Rogers, Arkansas
• Tucson, Arizona
• Palm Bay-Melbourne-Titusville, Florida
• Pensacola-Ferry Pass-Brent, Florida
• Spartanburg, South Carolina
• Knoxville, Tennessee
• Dallas-Fort Worth-Arlington, Texas
• San Antonio-New Braunfels, Texas

Bottom line

We are currently experiencing a seller’s market, but interest rate hikes and other economic factors are cooling the red-hot demand of the past two years. To compete in this market, buyers should come to the table with preapproved financing and a flexible approach to contingencies. Sellers can get the most bang for their buck by presenting an attractive home and pricing it fairly.