You hear the terms buyer’s market and seller’s market get tossed around a lot when the real estate market changes, whether due to varying supply and demand or mortgage rate movements. But if you are getting ready to enter the market, either as a buyer preparing to make a purchase or a seller listing their property, what does it actually mean for your homebuying — or selling — experience?
These terms effectively give you a clue as to which party will likely have the upper hand in transactions. If you are a buyer entering a buyer’s market, you can generally expect more options to choose from and greater leverage in negotiations. A seller’s market, by contrast, gives the seller the advantage, meaning they may get a better sales price, will have to offer fewer credits and repairs to seal the deal and even see bidding wars.
What is the difference between a buyer’s vs. seller’s market?
A buyer’s market happens when the “number of homes for sale exceeds the number of active buyers,” said Realtor.com. When this is the balance in the market, it typically “gives buyers more leverage as sellers compete to outshine one another.”
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In a seller’s market, the exact opposition is true: there “will be more buyers than homes for sale, so sellers have more control over the transaction,” said Yahoo Finance. As a result, buyers have a “lower chance of getting a home they want for a lower price, negotiating for repairs or receiving closing cost assistance from sellers,” and they may even “have to compete for a property in a bidding war.”
How can you tell if it is a buyer’s or a seller’s market?
One of the biggest tipoffs is home inventory. The “larger the inventory, the more likely it is that your local area is in the midst of a buyer’s market,” said Rocket Mortgage.
Another way to gauge market conditions is by digging into homes that were recently sold. For instance, “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,” said Rocket Mortgage. If homes are sitting on the market for a while and there are price cuts, that suggest a buyer’s market.
Lastly, mortgage rates and where they have been headed can be an indicator. “Rising interest rates make it more expensive for buyers to borrow money for a mortgage loan,” which can mean “first-time buyers and those on tighter budgets are often pushed out of the market entirely, reducing overall demand,” said HomeLight, a home buying and selling platform. Lower rates, on the other hand, will have more buyers ready to make moves.
Is it bad to sell in a buyer’s market, and vice versa?
Not necessarily, as long as you understand the implications and adjust your expectations and strategy accordingly. If you want to sell your house in a buyer’s market, “consider your list price carefully, compare the numbers for a good estimate of what the sale proceeds will be and be ready for a possibly slower sale,” said Yahoo Finance.
On the flip side, as a seller in a buyer’s market, it is important to balance making a competitive offer without compromising on your budget or eventual home purchase. In this situation, a knowledgeable real estate agent, a mortgage preapproval, an earnest money deposit and some flexibility around a closing date can go a long way. Patience is also key, since “during a seller’s market, sometimes buyers lose out on homes they’re interested in,” said Rocket Mortgage, and they may have to make multiple offers and commit to a longer search.
