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Understanding the Real Estate Market
Dated: January 15 2020
When Is It Buyer’s, When Is It Seller’s, and Why?
Once you dip your toes into the real estate world—be it buying, selling, or simply entertaining the idea of either—you will inevitably hear the terms ‘buyer’s market’ and ‘seller’s market’ more times than you’ll be able to keep track of. While you may hear it said and glaze over, it’s important to understand what it actually means. It could make all the difference when it comes to when and how you sell or buy your home.
First and foremost, the most important thing to know when it comes to the real estate market is, just like any other market based in capitalism, the market’s stance is completely dependent on the laws of supply and demand. The marketplace will swing between buyer’s and seller’s markets based solely on whether supply outweighs demand or vise versa. The market can fluctuate quickly and unexpectedly, and in some cases, it can be at a devastating loss. But it can also come at a magnificent gain. It’s all part of the ebb and flow of American business.
You’re probably wondering what difference it makes. What does it matter to you as a buy or seller if the market fluctuates? Well, it matters a lot actually. So, let’s explore the who, what, where, when, and why of buyer’s and seller’s markets.
Let’s start with the basics. Like what is a ‘buyer’s’ market? Well, it refers to a situation in which the supply of homes on the market exceeds the demand for the homes available. A buyer’s market essentially means the buyer has the advantage in the purchasing process. A downward pressure on price is created when there are more homes than there are buyers, and it gives the buyer pull in terms of negotiating price.
The benefits of buying in a buyer’s market:
- Houses tend to be priced at lower rates
- They stay on the market longer, so you have more time to weigh your options
- Price wars are common, but start on the low end, so a buyer can bid lower than asking price, in many cases
There is a flip side to all this though…and you’re probably curious about what the alternative outcome is when the roles of supply and demand suddenly reverse. When the demand for home outweighs the number of homes on the market, the result is a ‘seller’s market.’ It is in a seller’s market that an agent can encourage competitive pricing and will often have to navigate through bidding wars on any given property. Homes in a seller’s market will often sell at a higher price point than they were originally listed at.
The benefits to a seller in a seller’s market:
- The seller will often get multiple offers resulting in high stakes bidding wars
- It’s the best time to make money off the investment that is your home—you will likely turn a profit
- Staying at or below listing price is very unlikely
So, how do we determine what climate the market is in? Who gets to decide? Economics tells us a market of any industry can change quite literally from season to season. Also like any market, there are trends that happen at particular times of year. For instance, there are more homes for sale in the summer. The weather makes a potential move a lot easier to comprehend and leisurely buyers are more likely to get out look at homes when it’s warmer out. There will always be anomalies where people are forced to move at less than desirable times, but according to how the market changes historically, the winter tends to lean more towards a seller’s market, while the summer tends to lean towards a buyer’s.
The area of the market you are in or looking in matters too. Some areas are always trending towards a seller’s market because the population and influx of buyers is so immense. The markets in Southern California, NYC, Seattle, etc. are currently nearly always in a state of seller’s market. For the time being, these cities are more the exceptions to the rules over the rules themselves, but it’s important to know they exist. Sometimes these exceptions foreshadow major fluctuations on the larger scale.
There are three major differences within the markets and how they affect those who are in the home buying or selling process.
First, expectations. The expectation on a seller’s end means more money. On a buyer’s end it means more options and upgrades at a better price. The seller may have to work harder to push a property in the buyer’s market. This could mean renovating a home, landscaping, upgrading the curb appeal, and updating the appliances. This could be a cost for the seller, but it makes their home stand out in the sea that is the real estate market. Buyers expect a lot from a home in a buyer’s market, and sellers need to come through on those expectations if they want to sell. The reverse side to that is a seller’s expectation in a market that benefits them—which is essentially taking the highest bid in a hot market.
Second, power. Where the power lies in a real estate transaction depends on what type of market it is. If the buyer holds the power, it’s because they have the option to walk away from a home they love, knowing another will pop up in its place. This is less likely to happen if the seller holds the power. In this case, the buyer is left to make quick decisions so as to not let a property slip between their fingers.
Third, marketing. In a buyer’s market, the seller and agent usually have to work overtime to make the home stand out among the rest. They often throw in incentives, be it through upgrades, price reductions, or inclusion of furniture. This often also includes professional staging and photography—even aggressive ad placement. Anything and everything that ensure buyers will see and love the home. In a buyer’s market, these are non-negotiables. Reversely, in a seller’s market, a bit less of an emphasis can be placed on these marketing ploys. Seller’s can focus their efforts in on ensuring that their property lands in the hands of the highest bidder and forget about much else.
At the end of the day, knowing what state the market is in is vital if you have a choice as to where and when you’re going to move. Those the market can change from day to day, the big changes can be monitored through a simple google search. Pull up the homes for sale in your desired area. If the number is really high, it is a great time to start looking and thinking about purchasing a home. If the number is low, it might be a great time to sell for yourself, but a not so great time to buy. Asking a trusted realtor can bring you the peace of mind you’ll need to navigate the treacherous world of real estate. Ask one of our many knowledgeable agents about the climate of the market and whether now is a good time to buy or sell.
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