Buyer's market vs. seller's market: What does each mean for you?

When is the best time to buy or sell a home? While certain seasons may be busier than others, the fluctuations within the real estate market have far more to do with the concept of supply and demand than they do with the time of year. That’s why it’s crucial to pay attention to the housing market and if your local area is experiencing a buyer’s market or a seller’s market.

We’ll provide you with everything you need to be knowledgeable and competitive in both markets.

What Is A Buyer’s Market?

A buyer’s market occurs when supply exceeds demand. To put it another way, real estate inventory is high, and there are plenty of homes for sale, but there’s a shortage of interested home buyers. These conditions give buyers leverage over sellers because when supply is higher and demand lower, the market is forced to respond.

What Happens In A Buyer’s Market?

In a buyer’s market, real estate prices decrease, and homes linger on the market longer. This means that sellers must compete with each other in order to attract potential buyers. Typically, sellers will drop their asking prices to gain an advantage in the market. Furthermore, they’re much more willing to negotiate offers to prevent buyers from walking away.

For buyers, buying a home in a buyer’s market is ideal – it allows buyers to have more choices in homes, meaning better all around deals. This increased bargaining power allows buyers to have both lower price points on homes as well as the potential for additional concessions from sellers.

What Is A Seller’s Market?

A seller’s market arises when demand exceeds supply. In other words, there are many interested buyers, but the real estate inventory is low. Since there are fewer homes available, sellers are at an advantage.

What Happens In A Seller’s Market?

In a seller’s market, homes sell faster, and buyers must compete with each other in order to score a property. These market conditions often make buyers willing to spend more on a home than they would otherwise, meaning that sellers can raise their asking prices. Furthermore, the increased interest means that buyers rarely have the power to negotiate and are more willing to accept properties as-is.

Due to this shortage of housing, these conditions often lead to bidding wars. During bidding wars, buyers will make competing offers and drive up the price, typically above what the seller initially asked for.

How Can You Tell If It’s A Buyer’s Or Seller’s Market?

Before you buy or sell, there are ways to determine if your local area is experiencing a buyer’s market or seller’s market. Here are some indicators that will help you.

Real Estate Inventory

Review the homes available on the market. The larger the inventory, the more likely it is that your local area is in the midst of a buyer’s market. Conversely, if there seem to be very few homes being listed, then it’s likely a seller’s market.

To get a precise read on the inventory, divide the number of homes currently on the market by the number of homes that have sold in the last month. If the result is above seven, it’s a buyer’s market. If it’s below five, it’s a seller’s market. Anything in between is considered a neutral market.

Recent Sales

Check the recent sales of properties comparable to your own or the one you’re interested in. Pay attention to homes with similar factors like age, size, region, neighborhood and number of bedrooms. If you find that homes generally have been selling above their asking price, it’s a good indication that you’re in a seller’s market. If they’ve been selling below their asking price, signs point to a buyer’s market.

Pricing

In a buyer’s market, sellers will often drop their asking prices. When looking at current listings, review the price history. If you see that the prices of a number of homes have been cut recently, you can assume that it’s a buyer’s market.

Be aware that sellers may have unrealistic expectations about their homes’ value, so make sure that what you’re noticing is a trend, not just a single occurrence.

Market Rates

You can also observe interest rates to determine if it is a buyer’s or seller’s market. Higher interest rates can cause people to back out of the real estate market, which benefits buyers. Lower mortgage rates allow an influx of buyers, signaling a seller’s market.

Time On Market

The number of days that a home is on the market is another strong indication of housing conditions. Homes sell faster in a seller’s market and take more time to go under contract in a buyer’s market.

Market Trends

Knowing if home prices across your area have been increasing or decreasing is the strongest indication of whether it’s a seller’s or buyer’s market. The easiest way to gauge if housing prices are rising or falling is to look at market trend reports.

Rocket Homes^SM provides a free report of market conditions for anyone who creates an account. By searching the location you’re interested in, you’ll be given an option to see location trends.

Tips For Buying In A Buyer’s Market

A buyer’s market is the ideal time to purchase a new home because prices are lower and there are fewer buyers to compete with. There are a few ways a buyer can negotiate a deal to get the best possible terms on a home:

• Take your time. In a buyer’s market, the lower demand for homes means you’ll likely face little competition for the homes you’re interested in, allowing you to take the time you want to find your home.
• Know what’s available. See as many properties as possible before making an offer. Knowing what’s available on the market is highly beneficial – not only will it help you ensure that you find your ideal home, but also afford you a greater ability to negotiate price.
• Analyze comparable properties. Becoming familiar with comparable properties (or “comps”) on the market is key to negotiating effectively. By analyzing them, you can use their pricing to your advantage. On top of doing the research yourself, a real estate agent or REALTOR^® can help you analyze comps on their multiple listing service (MLS).
• Pay attention to days on the market. The longer a home has been available, the more power you’ll have negotiating for a lower price.
• Seek concessions from sellers. Even if you don’t ask for a significantly lower price, you can still negotiate for contingencies, seller concessions and repairs. Consider offering a lower price for the house or ask for the seller to pay for closing costs.

Tips For Selling In A Buyer’s Market

If you find yourself selling your home during a buyer’s market, do everything you can to make yours stand out.

• Make some necessary repairs. Since there are more properties for buyers to choose from, odds are likely that they’ll be a bit pickier. Before putting your home on the market, you’ll want to make any needed repairs and consider making minor improvements.
• Clean and depersonalize your home. Spend a lot of time considering how others will view your property. If buyers can’t envision themselves living in your home, they won’t make offers. So, do a deep clean, get rid of any clutter and touch up your landscaping in preparation.
• Market it like a pro. Your marketing will matter even more than it would in a neutral or seller’s market, so make sure you have stellar, professional photos taken of your property. If your home will be vacant or your decor is dated, it’s a good idea to hire a stager to ensure your home looks polished.
• Price it competitively. Survey similar homes on the market to see what they’re asking and make sure your list price is either on par with or lower than those. When you do get an offer, since you have less negotiating power, consider offering to pay a portion of the closing costs and for any repairs requested.

Tips For Buying In A Seller’s Market

Whenever there’s a limited supply of houses on the market and a wealth of interested buyers, time is of the essence. Here are some things you can do to when buying in a seller’s market:

• Act fast. If you find your dream home during a seller’s market, you should act fast. If you’re wishy-washy over a house you know you want to buy, you may find that it’s no longer available by the time you wish to make an offer. Understand how to get your initial mortgage approval ahead of time so your financing is in order when you need it.
• Know that you’re at a disadvantage. When it comes to making an offer, keep in mind that you don’t have the upper hand. A seller’s market is not the time to try to push contingencies, concessions, specific closing dates or repairs. Focus on what’s most important to you. If there are certain stipulations you want written into the contract, think hard about whether they’re worth potentially losing the property over.
• Consider making an all-cash offer. If you can make an all-cash offer, you should. Sellers prefer buyers who are willing to buy the house with cash because they don’t have to worry about the deal falling through due to financing issues.
• Be patient. Many buyers end up suffering during a seller’s market because they repeatedly lose out on homes they’re interested in. Inexperienced buyers caught up in bidding wars will often offer more money than a home is actually worth – or they feel comfortable spending – in order to get the home they want.
• Don’t settle for anything less than what you want. On the flip side, some buyers will end up making offers on homes they otherwise wouldn’t be interested in because they’re tired of losing out. Remember, buying any property is a huge investment and often a 30-year commitment to a mortgage payment. Unless you have to move immediately, it’s a much better idea to wait it out and resume your home search after the market cools down.

Should You Buy In A Seller’s Market?

Buying a home in a seller’s market can be worthwhile with proper financial preparation and a clear understanding of what you want in a property. However, considering the highly competitive market environment, you should be prepared to act quickly and potentially make concessions to secure what you want.

Tips For Selling In A Seller’s Market

Since sellers must compete with each other to attract buyers in a seller’s market, it’s helpful to know how to increase interest in your property.

• Clean and organize your home. Make sure that your home is in good condition and has been thoroughly cleaned and decluttered before you market or show the property.
• Give your home a fair price. Even though homes tend to sell for more money in a seller’s market, it still helps to price your home fairly. If you set your asking price at or slightly below fair market value, you’re likely to attract more interested buyers. Some sellers choose to list their homes for slightly less than the assessed value in order to encourage a bidding war.
• Consider your offers carefully. Sellers are often so focused on choosing the highest offer that they fail to examine the financial strength of each buyer. Just because buyers say they’ll pay a certain amount for your home doesn’t guarantee they’ll be able to obtain those funds. The last thing you want is to accept an unrealistic offer and be forced to put your home back on the market when the deal falls through.
• Strive for a swift sale. The longer your home is on the market, the more questionable it will seem to buyers, and the more power they will have when negotiating.
• Make sure your potential buyer has their mortgage approved early on. For any buyers who require financing, you should ensure that they have their initial mortgage approval before you accept their offer. This initial approval requires that buyers’ finances and credit history are verified, making it far more likely they’ll ultimately be able to obtain a loan for a specific amount of money.
• Be aware of contingencies. Offers that include stipulations, like mortgage contingencies, home sale contingencies, appraisal contingencies and inspection contingencies, enable buyers to back out of sales contracts if certain conditions aren’t met.

The Bottom Line

When buying or selling property, it helps to know where the market stands. As a buyer, you’ll want to purchase a home in a buyer’s market, but buying in a seller's market is still possible with the right preparation. On the flip side, sellers hope for a seller’s market so there are fewer properties and competitive buyers.

To be prepared, buyers can start the initial mortgage approval today to land your dream home sooner than later.