The real estate market has two opposing sides: buyers, who want to keep their costs low, and sellers, who want to maximize their profits. Depending on the inventory of available housing, one of those sides might have bigger advantages — and greater bargaining power — than the other. Understanding the difference between a buyer’s market and a seller’s market can be tied back to one of the fundamental laws of economics: supply and demand.
What is a buyer’s market?
When there is a surplus of homes and low demand for them, you’re in a buyer’s market. Prices tend to go down in these conditions, because there’s less competition. Additionally, homes are likely to stay on the market for longer, putting pressure on sellers to make concessions during the negotiation process.
Depending on which side of the fence you’re on, consider these tips for crafting a strategy in a buyer’s market.
If you’re a seller
Do you absolutely have to sell your place right now? If not, you might want to delay your listing until the market shifts. However, a buyer’s market doesn’t have to mean holding on to your home. Ask your real estate agent to suggest potential improvements and upgrades that might deliver a solid return on your investment. Small steps, such as hiring a home staging service, can make your home stand out. And be sure to think about the best time of the year to sell your home.
If you’re a buyer
Pat yourself on the back — you’ve chosen a good time to buy. Take your time. Since there isn’t as much competition, you don’t need to feel rushed to make an immediate offer. Research comparable properties so you’ll know how to make the right offer. Your agent can help guide you. Even if you can’t get a seller to come down on the price, for example, you may be able to get other benefits, such as repairs and additional contingencies.
What is a seller’s market?
If the supply of homes is not enough to meet the demand from buyers, you’re in a seller’s market. Home prices tend to go up in these conditions, as buyers compete for the few options that are available, and sellers are less likely to make concessions because they may receive multiple offers. Also, homes tend to stay on the market for a shorter amount of time, making it easier for sellers to close and move on.
How to navigate a seller’s market
A seller’s market can feel overwhelming for buyers, and perhaps a bit too tempting for sellers. Follow these tips to make a deal that works for you.
If you’re a seller
You still want to make your home appealing to buyers, even if the competition isn’t as stiff. “Be diligent about preparing your home for sale,” says Holly Connaker, a real estate agent with Compass in Minnesota. “Just because it is a hot market doesn’t mean you should forsake purging, refreshing and normal maintenance. Buyers notice a lack of attention to details and will wonder what else has been neglected.”
You may be able to price your home on the high side, but it’s important to check comparable properties in your area to ensure you’re not asking for too much. “Don’t get too greedy, because it can backfire on you,” Connaker says. “If you price your home too aggressively for the condition it is in, it may not sell right away. When homes don’t sell quickly, buyers assume something is wrong with the home.”
If you’re a buyer
You may want to consider holding off until the market is more favorable for you. If you don’t have the option to wait, you’ll need to act fast.
“Seller’s markets are easier to manage when a buyer is 100-percent prepared,” says Dylan Lennon, a Realtor with Mosaic Community Lifestyle Realty in Asheville, North Carolina. “This means having a prequalification letter ahead of time if financing is involved, being comfortable with the purchase contract so that it can be signed quickly before an offer is made and knowing what to expect during the home inspection.”
Also, be ready to make an offer that’s higher than the asking price — you can bet other buyers will be doing the same. Just don’t get so caught up in a bidding war that you end up paying more than you can afford (or more than the house is worth). Additionally, be aware that your lender will likely only agree to a loan based on the property’s appraised value; if your offer is higher than that, you’ll need to come up with the difference.
Don’t expect to get many concessions during the negotiation process, either. If something in the home needs to be repaired, you may need to fix it yourself after closing.
The real estate market today
If you’re entering the real estate market in the second half of 2022, you’re likely seeing a cooldown of the raging seller’s market we’ve had for the past two years. While inventory remains low — particularly for affordably priced properties — rapidly rising mortgage rates are starting to balance out the market in many areas of the country.
August 2022 marked the seventh consecutive month of existing-home-sales decline, according to National Association of Realtors data. But we’re certainly not in a buyer’s market just yet: Median home sale prices are up 7.7 percent from 2021.
Fall Housing Prediction
How to determine what’s happening, going forward
Will the rest of 2022 continue to lean in favor of sellers? Or will the scales slowly but surely tip in the other direction? Looking ahead, here are some key indicators to help you gauge whether your area is leaning toward a buyer’s market or a seller’s market:
- Inventory: If you’ve house-hunted in the past, compare the current inventory of properties with what you’ve seen before. In general, the more homes that are available, the likelier it is that it’s a buyer’s market. On the flip side, fewer options generally weigh in favor of sellers.
Related video: In-Depth Analysis Of Stock Market With Market Sharpest Insights | Editors' Roundtable | CNBC-TV18:23
Buy names you aren't going to sell in the next down market, says NewEdge Wealth's Recent sales: Take a look at some properties in the area that are comparable to the one you’re hoping to buy or sell. If they sold above asking price, it’s likely a seller’s market. If the price ended up below ask, it’s likely a buyer’s market.
- Days on market and pricing: The longer a home remains on the market, the more the seller may be willing to do to offload it. If a seller has recently dropped the price of a property comparable to the one you want, it could be a sign of a buyer’s market. The same goes if the price hasn’t budged but the home has been on the market for a while. It’s not uncommon for sellers to ask for more than what the market is willing to pay, so as a buyer, you’ll want to review multiple properties to determine whether it’s a trend or an isolated occurrence.
- Local market trends: Consider the data and local housing trends. If you notice that prices have increased sharply in recent months, for instance, it could be a sign that you’re in a seller’s market. On the other hand, if prices have remained the same or gone down, buyers may have the upper hand.
Evaluating all of these indicators can be time-consuming, especially if you’re not extremely knowledgeable about the housing market. Your best bet in this case is to consult with a local real estate agent who knows your specific area. Don’t just follow the national headlines about the overall housing market. Consider this range: According to Redfin, the average home in Denver stays on the market for just 12 days, while the average home in Pittsburgh takes 48 days to sell.
“Markets are hyperlocal and can vary wildly with price point,” Lennon says. “Buyers should work with a Broker who has demonstrated selling experience in the price point they’re shopping in.”