Understanding the Real Estate Market: The Differences between a Buyer's Market and a Seller's Market.
The type of market you are in is influenced by a variety of factors and with the market fluctuating, it’s important to understand which market you are in before you decide to buy or sell property.
For buyers, a buyer's market provides them with more options and more time to make a decision on the property they are looking to purchase. On the other hand, a seller's market can be more challenging for buyers, as it can make it difficult to find a property to suit them and prices are typically higher.
For sellers, a seller's market provides them with more bargaining power and a higher likelihood of selling their property at a higher price. However, it can be challenging for sellers to navigate a buyer's market, as it may take longer to sell their property and they may need to be more flexible with their pricing.
What influences the difference between a buyer’s and a seller’s market??
What is a buyers market?
With more properties available for purchase than there are buyers and the opportunity for buyers to negotiate better property deals, properties may remain on the market for longer periods of time, which gives buyers more time to make a decision.
- More properties available than buyers
- Less competition among buyers
- Buyers have more bargaining power
- Prices are typically lower
- More time for buyers to make a decision
What is a seller’s market?
In contrast, a seller's market is characterized by a scarcity of properties available for purchase meaning higher demand. In a seller's market, sellers have more bargaining power, and buyers may have to compete with other buyer’s to purchase a property.
- Fewer properties available than buyer’s
- More competition among buyer’s
- Sellers have more bargaining power
- Prices are typically higher
- Less time for buyers to make a decision
How to know if you’re in a buyer’s or seller’s market:
To determine whether it’s a buyer’s or seller’s market,, consider researching these key indications: :
- The months of supply of homes for sale: This is the number of months it would take for the current number of homes for sale to reduce , by looking at the current rate of home sales. In a buyer’s market, there is usually a high months of supply (6 months or more), while in a seller’s market, there is usually a low months of supply (less than 6 months).
- Compare the sales price to list price to find the ratio: In a seller’s market, homes tend to sell close to or even above their asking price, while in a buyer’s market, homes tend to sell below their asking price.
- Time on market: Homes in a sellers market tend to sell more quickly than homes in a buyers market.
Top Tips for buyers in a buyer’s market:
- Be prepared: Have your financing in order and be ready to make a decision when you find a home you want. In a buyer’s market, properties may stay on the market for longer, but good deals can still go quickly.
- Be flexible: Be open to considering different neighborhoods, property types, and even fixer-upper properties.
- Do your research: Understand the market conditions in the areas you're interested in, so you can make informed decisions about pricing and negotiation.
- Be persistent: You may need to make multiple offers before finding a home you can purchase. Be prepared to move on if your offer is rejected and don't be afraid to make another offer on a different property.
- Get a home inspection: even if the prices are lower in a buyer’s market, you still need to make sure the house is in good condition. Get a home inspection by professional home inspector will give you a detailed report of the condition of the home.
- Be prepared to negotiate: In a buyer’s market, sellers may be more willing to negotiate on price, closing costs, and other terms. Be prepared to make a reasonable counter offer if necessary.
Tips for sellers in a buyer’s market:
- Price it right: In a buyer’s market, homes may take longer to sell and may not sell at top dollar. It's important to price your home competitively to attract buyers.
- Make necessary repairs and improvements: Before listing your home, make any necessary repairs and improvements to help it show well and attract more buyers.
- Stage your home: Staging your home can help buyers visualize themselves living there and may make your home more attractive than others on the market.
- Use high-quality photos and virtual tours: Good photos and virtual tours can help your home stand out online, making it more attractive to potential buyers.
- Be flexible with showings: Make your home as accessible as possible to potential buyers, even if it means having to vacate your home for a showing at short notice.
- Be prepared to negotiate: In a buyer’s market, buyers may ask for more concessions, such as closing cost assistance. Be prepared to negotiate and be open to considering reasonable offers.
- Be patient: Homes may take longer to sell in a buyer’s market, so be prepared to wait for the right buyer to come along.
Tips for buyers in a seller’s market:
- Be pre-approved: Having a pre-approval letter from a lender can help demonstrate to sellers that you are a serious and qualified buyer.
- Be prepared to act fast: In a sellers market, properties can go quickly, so be prepared to act fast when you find a home you like.
- Be persistent: You may need to make multiple offers before finding a home you can purchase.
- Be willing to compromise: In a seller’s market, buyers may need to compromise on things like closing date, price or contingencies, such as home inspections or financing, in order to win a bidding war.
- Be ready to make an aggressive offer: In a sellers market, you may need to make an aggressive offer in order to compete with other buyers.
- Have a plan B: Before you submit an offer, make sure you have a plan B in case the sale falls through
Tips for sellers in a seller’s market:
- Price it right: While you may be able to get a higher price in a seller’s market, it's still important to price your home correctly in order to attract serious buyers and generate multiple offers.
- Make necessary repairs and improvements: Before listing your home, make any necessary repairs and improvements to help it show well and attract buyers.
- Be prepared for multiple offers: In a seller’s market, you may receive multiple offers on your home. Be prepared to evaluate them and make a decision quickly.
- Be prepared to negotiate: While you may have the upper hand in a seller’s market, be prepared to negotiate with buyers on things like closing date and contingencies.
- Be prepared to move out quickly: In a seller’s market, you may need to be prepared to move out of your home quickly in order to accommodate the buyers schedule.
Case study:
As an example, let's take a look at the housing market in Sydney, Australia during the COVID-19 pandemic. Before the pandemic, Sydney was experiencing a seller's market, with limited supply and strong demand, resulting in high prices and fierce competition among buyers. However, during the pandemic, things changed drastically, as the travel restrictions and lockdowns led to a slowdown in the economy, which led to a decrease in demand for housing. This resulted in a shift towards a buyer's market, with more properties available for purchase and lower prices.
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*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Joust recommends that you consider whether it is appropriate for your circumstances. Joust recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
