Buyer's market vs. seller's market: What's the difference?
Knowing the market can affect when and how you sell or buy
Whether you are buying or selling a home, it's important to understand the two types of market conditions: buyer's market and seller's market. Buying in the right market can mean a more affordable home purchase, while selling in a hot market can lead to higher demand and offers that are well over asking price.
Here’s how to tell the difference between a buyer’s market and a seller’s market and how to use it to your advantage.
- In a buyer’s market, there are more home listings and the buyers have more negotiation power.
- In a seller’s market, houses sell fast and buyers are more likely to overpay for a home.
- You can tell which market you are in by how many home listings hit your area.
What is 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.
Jonathan de Araujo, a licensed real estate agent with Vantage Point Team in Lexington, Massachusetts, said he would characterize 2020 and 2021 as an extreme seller’s market.
“There [was] a very low supply of homes, and thanks to record low interest rates, lots of buyers [were] ready to make a purchase,” he said.
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 the 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 have a lender preapproval in hand. 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. However, no matter how desperate you are to win the bidding war, don’t forgo a home inspection.
- 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.”
» MORE: Homebuying checklist
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 Bill Gassett, a RE/MAX real estate agent with more than 36 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,” said 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.”
- Presentation still matters: Don’t let a seller’s market make you complacent about presentation. Declutter and depersonalize your space as best as possible so it attracts a wider audience.
» MORE: What are real estate comps?
What is a buyer’s market?
Buyer’s markets are 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.
A buyer’s market is good for the buyer since they can demand more perks, like closing costs covered, and are likely to pay less for the home than they would in a seller’s market.
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.
How can you tell if it’s a buyer’s or seller’s market?
Whether you are in a buyer’s or seller’s market will depend largely on the current interest rates and home prices, as well as your area. For example, mortgage rates can be high, but your area might be in a seller’s market because of an increase in people relocating nearby.
Not sure if your area is experiencing a seller’s market or buyer’s market? Here are a few signs:
- High real estate inventory: Online real estate listings likely have several new houses hitting the market each week.
- Price cuts: Expect to see many listings drop their prices since sellers are having a harder time getting a buyer.
- Long time on the market: Houses will sit for months at a time.
- Low real estate inventory: You see more pending sales than sale listings.
- Outbid: In a seller’s market, buyers are more likely to be outbid or in competition for one listing.
- Gone in a weekend: Expect listings to be pending after the weekend.
How can you tell a seller’s market is ending?
There are a few factors that tell you a seller’s market is coming to a close. According to real estate agent Chuck Vander Stelt, these include:
- An increase in the number of available homes for sale
- Listing prices going down
- Economic changes impacting homebuyers' finances, such as increased prices for everyday goods and rising interest rates
Should I sell my home if it is a buyer’s market?
Just because it is a buyer’s market does not mean you cannot sell your home successfully. Even in a buyer’s market, your home can attract a bidding war if it is in a highly desirable area and offers unique features other house listings don’t.
What’s the disadvantage of selling your home in a seller’s market?
Selling your home in a seller’s market means you will have a higher chance of making a large profit on your home. However, if you have plans to buy a home, you will either need to buy high or wait until the market drops again.
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