What is a buyer’s vs. a seller’s market?
The housing market can fluctuate between a buyer’s market and seller’s market based on supply and demand. Whether you’re a homebuyer or home seller, understanding what it means to have a buyer’s vs. seller’s market can help you maximize your gain on a sale or savings on a purchase. It can also potentially give you an advantage in negotiations.
Here’s how to tell what type of market you’re in, and how to make the most of it as a buyer or seller.
What is a buyer’s market vs. a seller’s market?
There are many factors that can influence home prices, but one of the biggest ones is supply and demand in the local real estate market.
When there are more homes than interested buyers, for instance, prices can go down because there’s less competition. What’s more, homes are likely to stay on the market for longer, putting pressure on sellers to make more concessions during the negotiation process.
In contrast, if the supply of homes doesn’t meet the demand from buyers, you’re in a seller’s market. In this scenario, home prices can go up as buyers compete for the few options that are available, and sellers are less likely to make concessions because they have a line of interested parties. 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 determine what’s happening in your market
Your area may be experiencing a buyer’s market or a seller’s market. How do you know which one it is so you can plan accordingly? Here are some indicators to look at:
- 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 tip the scales in favor of sellers.
- 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 you’re in a seller’s market. If the price ended up below what the seller initially asked for, that could be an indicator of 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, you may have the upper hand if you’re a buyer.
Evaluating all of these indicators can be time-consuming, especially if you’re not knowledgeable about the housing market. Your best bet in this case is to consult with a local real estate agent who can give you specific information about your area.
“Markets are hyperlocal and can vary wildly with price point,” explains Dylan Lennon, a real estate agent with Keller Williams Professionals in Asheville, North Carolina. “Buyers should work with a Realtor who has demonstrated selling experience in the price point they’re shopping in.”
What to do in a buyer’s market
If you’re a homebuyer, a buyer’s market is usually the best time to try to purchase a home because you’ll have less competition from other buyers, and potentially some leverage in negotiations.
Take some time to research comparable properties so you’ll know how to make the right offer. Your real estate agent can help guide you and make recommendations. 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.
If you’re a seller in a buyer’s market, you might want to consider waiting until demand exceeds supply, if possible. If you don’t have that option, making necessary repairs and even some minor improvements may help your property stand out in a sea of choices. You’ll also want to look at comparable properties in your area to make sure you’re pricing your home in line with what other sellers are charging.
What to do in a seller’s market
If you’re thinking of buying a home in a seller’s market, 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,” Lennon says. “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 inspections.”
Also, be ready to make an offer that’s higher than 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).
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.
If you’re a seller in a seller’s market, you’re still going to want to make your home appealing to buyers, even if the competition isn’t as stiff. You may be able to price a little higher than what the home is worth, but it’s important to check comparable properties in your area to ensure you’re not asking for too much.
It’s also crucial to get an idea of each prospective buyer’s financial situation to make sure you find the right fit. Anyone can offer more money, but if the deal falls through because the buyer can’t get the financing, you’ll need to start all over again.
Will 2021 be a buyer’s or seller’s market?
There are a lot of factors that can influence whether your area becomes a buyer’s market or seller’s market, but the most important to remember is that conditions can vary by region and change over the course of the year. For example, you may see a seller’s market during the spring and summer months, when activity tends to pick up, and more of a buyer’s market at quieter times of year.
That said, it’s unclear how the pandemic and its effects will play out in 2021. If homeowners are struggling financially and some are forced to sell their homes, the increased inventory could drive prices lower and make for a buyer’s market.
On the flip side, if the pandemic gets under control, that may mean more buyers will have the means to get into a home, which could point toward a seller’s market.
Other aspects of the pandemic could also have an impact.
“COVID-19 is giving buyers several reasons to move,” Lennon notes. “The option to telework or work completely remotely is opening up new possibilities for buyers who have wanted to move but could not find employment.
“Although it will vary by region, I anticipate that we will see continued competitiveness among buyers into spring 2021,” Lennon says.
If you’re thinking about buying or selling a home in 2021, take these factors into account, and consider working with a real estate agent who can give you the best guidance based on the trends in your market.
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