If you’ve dabbled in real estate, you’ve probably heard the terms “buyer’s market” and “seller’s market.” So, if you’re an aspiring buyer in a buyer’s market, what does that mean for you?
Real estate markets change all the time because they’re directly impacted by several factors, including shifts in supply and demand, seasons, interest rates and the economy. When there are more homes for sale than there are buyers to buy those homes, buyers have more leverage than sellers. This scenario, also known as a buyer’s market, typically works in the buyer’s favor.
But whether you’re a buyer or seller, it’s important to know how to navigate a buyer’s market.
What Makes a Buyer’s Market?
In a buyer’s market, market conditions favor buyers. The supply of available homes is greater than buyer demand for homes, and home prices are typically lower.
The shift to a buyer’s market can happen for a variety of reasons, including the overdevelopment of new housing or a lack of buyer demand for homes. Buyer’s markets often occur during economic recessions, when the buyer pool shrinks because of high unemployment, economic instability or unsustainably high mortgage rates.
When housing market supply and demand favors buyers, buyers tend to spend more time shopping around for a home that better suits their needs and budgets.
Sellers may find that their property sits on the market for longer than average, and they may need to make compromises to sell their home, like accepting more contingencies or lowering the purchase price.
Buyer’s market example
National and regional-level factors can impact the real estate market. For instance, buyer’s markets often occur during economic recessions, when fewer people have the funds to invest in a purchase as significant as a new home. But buyer’s markets can be local. There could be a buyer’s market in one town or county, but not surrounding areas.
As remote work becomes more common, many employees are moving out of expensive cities and settling into more affordable areas. Because of the exodus, there are fewer buyers around to buy housing, creating a surplus of housing and a shortage of buyers.
As a result, the high prices you typically associate with metropolitan areas may drop to appeal to a wider range of buyers. Because work opportunities in the area may no longer be the draw it was before WFH, sellers may need to highlight other area and/or property features or amenities to justify their asking price.
What Makes a Seller’s Market?
A seller’s market is the opposite of a buyer’s market. In a seller’s market, supply and demand favors sellers because there is a limited supply of homes that fuels lots of competition between buyers. Sellers can raise their asking prices and can typically expect faster sales.
For example, in some areas, the post-pandemic lumber shortage slowed down the construction of new homes, which kept the housing supply low and contributed to a seller’s market.
With demand so high, a prospective buyer may instigate a bidding war that causes the home’s asking price to soar even higher.
What’s the Difference Between a Buyer’s and a Seller’s Market?
How can you tell if it’s a buyer’s or seller’s market right now? Here are a few factors to help you get a read on who has the upper hand in the real estate market:
- Time on the market: When properties have been sitting on the market for a while, that usually points to a buyer’s market. When homes sell very quickly, that usually points to a seller’s market.
- Asking and purchase prices: Higher prices are a typical feature of a seller’s market, and slashed prices suggest a buyer’s market. When purchase prices are higher than the original asking prices, that could indicate bidding wars, which is another characteristic of seller’s markets.
- Inventory: When real estate inventory is high, that may suggest an excess supply of housing or a smaller pool of prospective buyers – both are characteristics of buyer’s markets.
- Mortgage rates: Low mortgage rates can increase buying power. This can result in larger buyer pools and seller’s markets. When rates are high, many buyers get priced out of the market.
How Should You Approach a Buyer’s Market?
Sellers and buyers entering the housing market must perform market research and become quick studies of housing inventory and buyer competition.
No matter which side of the real estate transaction you’re on, make sure your real estate agent knows what you want from your home buying (or home selling) journey so they can best support your goals.
Whether the market favors you or not, establish realistic goals and expectations and be open to possibilities you may not have considered before. They may end up being the best deal for you.
But there are a few considerations both buyers and sellers must take into account. Are you buying? Are you selling? Here’s how you should approach a buyer’s market:
Buying a home in a buyer’s market
While buyers usually have the upper hand in a buyer’s market, it doesn’t mean it’s a home buying free-for-all. Sellers still want strong offers. But, if you strategize effectively, you can get more value for your dollar.
- Make a lower offer: In a buyer’s market, sellers are more open to accepting offers that are south of their asking price. Before a buyer decides what to offer, they should consult with their real estate agent and consider what they’d pay for the home despite the asking price. Some houses may only be worth it if they’re deeply discounted.
- Ask for concessions or repairs: Sellers in a buyer’s market might be more willing to cover closing costs, be flexible with the closing date or throw in items, like furniture or that riding lawn mower, in the purchase. You can also ask for repairs before closing.
- Get contingencies: You can ask for home sale contingencies. Contingencies (like waiting for your existing home to sell before you can buy the new one) are conditions that must be met before you can close on the deal.
Selling a home in a buyer’s market
As a seller, you may not have the luxury of waiting for the market to favor sellers before you sell your home. Even so, you’re not entirely at a disadvantage in a seller’s market. Yes, you’ll be competing with more sellers, and you may need to work a little harder, but you can still close the deal and feel satisfied with the purchase price.
- Make your home stand out: Even if the buyer pool in your area is small, you can make your home stand out for more than its location. Highlight the unique features of your home, like your beautiful outdoor space or in-law suite. If you’re worried that your property doesn’t have marketable features, you may want to invest in cosmetic upgrades, like a paint job or landscaping, that can boost your home’s appeal.
- Make repairs: Buyers are more likely to ask sellers for concessions if they can’t get a lower home sale price. Plan for potential concession costs and look for deals on repairs, upgrades or other expenses.
- Get a preinspection: You can reduce the chance of buyers requesting more repairs or concessions by streamlining the purchase process with a preinspection. The seller schedules a home inspection and makes any repairs suggested by the inspector before listing the property. The seller can make the home inspection report available to potential buyers, who will see what repairs have been made and may waive the home inspection.
Property Power to Buyers
If you’re a first-time home buyer, a buyer’s market might be your best opportunity to get a good deal on a home. Typically, you get to pick from more homes and negotiate better terms and prices.