Buyer's Market vs Seller's Market

Certified Mortgage Advisor
NMLS 1701021
Published 
July 5, 2019

Buyer's market and a seller's market, which market?

So we're going to talk about the differences between the two. How to make sure that you're in the right market. And then how to protect yourself from either overpaying for a house that you're going to buy or from underselling, the house that you want to sell. So ultimately, how can you protect yourself and make sure that you get the best deal possible in both of these markets?

1. What is buyer's market and a seller's market?

So if you're looking at buying or selling you're in the housing market, you've been exposed to how many people are buying, how many people are selling, and whether the market's super crazy or not. And all we're talking about in these markets is we're trying to look at the overall pattern of what's happening in how many people are buying and how many people are selling because it ultimately ends up affecting the decisions that we make.

All markets have cycle

All markets, whether it's the stock market or a bond market, the real estate market all have cycles. During a period of time, they end up going down and then they end up going up and they go down and up and it ultimately ends up correcting itself, but they always hit these cycles. And in real estate, we call these cycles buyer's markets and seller's markets.

So, what's the difference?

So the easiest way to figure out the difference between the two is instead of looking at the complex economics that go into it is instead of market, just put in the word control.

The buyers have the control with the market

So in a buyer's market, the buyers have control of the market in a seller's market. The sellers have control of the market. So what does that mean? In the buyer's market, the buyers have control.

What do they have control over?

They have control over price, over terms of what they're going to buy over the speed at which they're going to buy. Whereas the sellers in a seller's market, the sellers have control over the price and of the terms, and ultimately what's going to happen in the deal.

Supply and demand: How it works

This all comes back to just basic economics of supply and demand, right? So supply is talking about how many houses are for sale. You might also hear this with the word inventory. All it means is how many homes are for sale. So the supply, our homes for sale. The demand is how many people are purchasing, right? So supply -- what homes exist, how many are for sale -- demand? How many people are willing to buy these homes?

So for instance, let's talk about a market where there's only for illustration, we'll say there are only two homes for sale on this side, but over here we have 10 buyers, right? In that situation, this is a seller's market. These sellers over here can charge almost anything that they want because there are 10 buyers. Out of these 10 people, they're going to be probably a bidding war for who's going to take these two houses. If we flip it around if there are 10 homes for sale and only two buyers, what ends up happening is we're in a buyer's market, right?

The buyers over here have control because the sellers are wanting to get rid of these properties and they're not going as quickly as they would like to.

Who is in control?

So the easiest way to think about it is a buyer's market is best for buyers. Buyers have control. A seller's market is best for sellers. Sellers have control. 

Our GOAL

Ultimately the whole goal of this is to figure out, why you need to know about these markets so that you don't have to be scared going into the market. You can be prepared and you can figure out is now actually a good time for you to buy or to sell, or should you be patient and wait for the right market? Because if you buy in a seller's market or you sell in a buyer's market, you run the risk of losing money either overpaying for a deal or underselling your home because the market isn't lined up with the goals that you have at that exact moment.

So knowing the market is going to help you make sure that you buy and sell for the best price possible and that you do it on your own terms.

Difference between each market

So let's look at the differences, the key points between these two markets. In a buyer's market, the buyers have control. So what you often see in a buyer's market is lower prices. If a home is listed at 200,000, a buyer, most likely will easily be able to ask for some somewhere lower, maybe 190, 195, and try to negotiate that price down.

Or the buyer might be able to ask for a lot in seller concessions or maybe some personal property. They get to have a negotiation power.  Because the sellers are very eager to sell in that market. Also in a buyer's market, you're going to find more deals in real estate. Often in real estate investing, you hear that the wealth in real estate is made at the purchase.

Average days on market

So in other words, if you're going to make money in real estate, it's often because you bought at a really good deal. If you're looking for that, a buyer's market is going to be best for you. You can buy for some better deals there. Also in a buyer's market, you're going to find homes listed for sale for longer. This is what's called average days on market.

So how long has that home been listed for sale? We'll see that being longer in a buyer's market, just because there aren't as many buyers, there are more sellers than there are buyers in a buyer's market. So we can contrast that with the seller's market.  in a seller's market. The sellers have control. There are fewer sellers and more buyers. So what that ends up creating are a lot higher prices. So that same $200,000 house and a seller's market might be listed for 210, 222, or 230. Depending on how aggressive the market is getting.

So in a seller's market, we can see these prices start to go up and up and something to watch out for in a seller's market. If you're looking at buying or selling for that matter is if an appraiser appraises the property. They might decrease the value. And what can end up happening is even if you sell it for 220, the appraiser might come in and say, we're only willing to lend at two 10, and that can shrink down the price, which is good news for the buyer, bad news for the seller.

Negotiation power for sellers

Also, sellers in a seller's market, have control, so they have negotiation power. So if you're a seller in a seller's market if you list at 200,000 and a buyer offers one 90, it's not going to be difficult for you to find another buyer who's willing to provide you with your listing price or more in a seller's market, just because there are a lot more buyers out there.

You don't have to take the first offer that comes in. There will be more also in a seller's market. We're seeing shorter days on market. For example, right now we're in a very heavy seller's market. And we're seeing sometimes where our home is listed for sale and it gets an offer in two hours.

Sometimes it's not always that quick, even if it's not two hours, it's two days or a week and homes are flying off the shelf really quickly. In a seller's market, you want to be prepared to move quickly because homes are selling quickly. Whereas in a buyer's market, you have a little bit more time and flexibility in the deal.

Figure out, know your strategy

So hopefully this gives you a good example of a buyer's market and seller's market. And the difference between the two and the whole goal again is to make sure that find where you're at either you're buying or you're selling, or you might be doing a mixture of both, and then try to figure out where your market is at and what strategy do you need to make sure that you get the best deal possible.

It might be that you want to wait a few months until the market switches over To align with the goals that you have, or maybe you just need to make sure that you're watching out for the differences between the two and just be mindful of where the markets at, what the market is wanting. That way you can structure your deal in the best way possible.

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