Before buying or selling a house, you’ll want to understand the current power dynamics in the housing market. The market has two opposing sides: buyers and sellers. Depending on factors like supply and demand, one side has the upper hand.
Understanding where the market is can help you devise a strategy to buy or sell a house. Let’s take a closer look at both types of real estate markets and explore how buyers and sellers can make either situation work for them.
What’s a Buyer’s Market?
In a buyer’s market, Rocket Homes says, “the number of available homes is greater than the number of potential buyers.” In other words, the current housing supply exceeds the demand from buyers.
When this happens, houses typically sit on the market for longer amounts of time. Bidding wars are unlikely, and sellers who don’t want to wait out the market may decide to reduce their asking price.
Buyers have the advantage during this type of market. For instance, they tend to have more houses to choose from and greater negotiating power. That can result in getting more bang for their buck.
What’s a Seller’s Market?
While sellers can have difficulty moving their homes in a buyer’s market, that isn’t the case in a seller’s market. As you might expect, a seller’s market occurs when the demand for housing exceeds the supply.
“In a seller’s market,” Assurance Financial says, “houses sell faster than average, requiring more buyers to compete with one another to secure a property.” As a result, sellers have the upper hand and may benefit in a few ways.
For instance, buyers may enter bidding wars with each other, driving the final price significantly over the asking price. Additionally, buyers may be quick to forgo inspections and accept properties as-is.
How To Tell if It’s a Buyer’s or Seller’s Market
An experienced real estate agent can help you determine whether you’re in a buyer’s market or a seller’s market. But Experian says there are some indicators you can use to figure out the state of the market:
- Average home price trends
- Whether homes sell for more or less than asking prices
- Length of time houses remain on the market
If average home prices are trending down, houses are sitting on the market longer, and homes are selling for less than the asking prices, then it’s a buyer’s market. If the opposite is true, then it’s a seller’s market.
Buying in a Seller’s Market
Just because the market isn’t in your favor doesn’t mean you have to wait for the tides to turn. However, you’ll want to prepare yourself. Since competition is high, buyers should be ready to act fast.
With this in mind, you may want to get mortgage preapproval from a lender. You’ll also want to keep up with the latest real estate listings because houses sell quickly. Offers may roll in on the first day.
Additionally, buyers in a seller’s market may face bidding wars. That’s why it’s a good idea to figure out the max price a particular house is worth to you in order to avoid getting caught up in the moment.
Selling in a Seller’s Market
If you live in a hot housing market, then it could be a good time to sell. But that doesn’t mean sellers don’t need a strategy to reap the benefits of a seller’s market. For one thing, you’ll still want to take some time to put your house in the best possible light.
After all, a spruced-up house may be more likely to attract high offers and spark a bidding war. Also, you can use your upper hand to take your time reviewing offers carefully. In addition to price, consider things like contingencies and whether it’s a cash offer.
Buying in a Buyer’s Market
Much like selling in a seller’s market, buying in a buyer’s market is ideal. Similarly, you’ll still want to keep a few things in mind to get the most out of the situation. Since you have the upper hand, you can take some time to consider your options and view many houses.
In a buyer’s market, buyers have negotiating power. That means you may be able to negotiate the price and closing costs. And you may be able to request updates like a new roof. However, excessive demands may sour the seller. So, keep that in mind if you love the house.
Selling in a Buyer’s Market
Since buyers have the advantage in a buyer’s market, sellers will want their homes to stand out. For starters, you may want to take sprucing up your home to the next level.
A fresh coat of paint, well-maintained planters, and new light fixtures can enhance your home’s curb appeal. Inside, remove personal items and stage each room.
It’s also important to set an asking price that’s realistic. An experienced real estate agent can help you determine a competitive asking price for the state of the market.
Factors That Affect the Housing Market
Several factors can influence the housing market. For example, the time of year can make a big difference. Generally, more homes hit the market in the summer than in the winter. So, buyers are more likely to have choices during the summer months.
The economy is another influential factor. If interest rates are low, then buyers may face more competition. That can lead to rising prices and quick sales, which can benefit sellers. Things like the school district and nearby amenities can also affect the market.
Buyer’s Market vs. Seller’s Market in a Nutshell
Now that we’ve covered the difference between a buyer’s market and a seller’s market in detail, you may want a cheat sheet for reference. That way, you can quickly identify the characteristics of both types of real estate markets.
Typical Features of a Buyer’s Market:
- A lot of homes are on the market
- Home prices are falling
- Homes sit on the market longer
Typical Features of a Seller’s Market:
- Not many homes are on the market
- Home prices are rising
- Homes sell quickly after hitting the market
The Bottom Line
The state of the housing market changes over time as supply and demand fluctuate. If you want to buy, but it’s a seller’s market, then you might want to wait it out. And vice versa. However, you might not have the luxury of being able to put buying or selling on hold.
Understanding the difference between a buyer’s market and a seller’s market can help you navigate a housing market that’s less than ideal for your situation. Even if you’re selling or buying at the ideal time, strategy can help you maximize your advantage.
- Common indicators of a buyer’s market include slow home sales and lower home prices.
- A seller’s market, on the other hand, is characterized by quick sales and rising prices.
- Buyers and sellers can navigate either scenario with a few helpful tactics and strategies.