When it comes to real estate, knowing the difference between a buyers market vs sellers market can help you navigate the market.
The terms buyer’s market and seller’s market get thrown around a lot whenever the subject of real estate comes up.
But what do they mean? And why do they matter?
Referring to a real estate market as a buyers market or a sellers market is a way of taking the temperature of how a real estate market is doing. All real estate is local. Knowing how the market is doing where you live can help you in your buying and selling decisions.
Whether a real estate market is a balanced market, a buyer’s market, or a seller’s market is measured by months supply of inventory.
What the heck is months supply of inventory?
Months supply of inventory is a calculation that estimates how long it would take for all the homes currently on the market to sell given how fast they are currently selling.
Depending on the months supply of inventory, a real estate market is considered to be a balanced market, a buyer’s market, or a seller’s market.
What is a balanced market?
According to the National Association of Realtors, 6 months supply of inventory is considered to be a balanced market.
A balanced real estate market is a market that’s equally favorable to both home buyers and home sellers. Moderate price increases are typical in a balanced real estate market.
What is a buyers market?
A buyer’s market is when there is more than 6 months supply of inventory – that is, there are more homes for sale than there are buyers to buy them.
What does this mean for home buyers?
Because there are more homes for sale than buyers to buy them, home buyers have more negotiating power in a buyers market.
Home prices are typically lower in a buyers market because there is more housing supply than there is buyer demand.
What does this mean for home sellers?
When home buyers have many houses to choose from, home sellers need to figure out strategies to have their homes stand out to home buyers. The stronger a buyer’s market is (the more houses that a buyer has to choose from), the harder home sellers have to fight in order to position their house to be the one that buyers choose to buy.
Home sellers do best in a buyers market when they realize that their house is competing against many others to get a home buyer’s attention.
One of the best ways that home sellers can make their homes stand out in a buyer’s market is to competitively price their homes for sale. Home sellers who take buyer demand into account when pricing their homes for sale are in a much better position to have their homes stand out to buyers in a buyer’s market.
What is a sellers market?
A sellers market is when there is less than 6 months supply of inventory – meaning there is not enough housing inventory to meet buyer demand. A sellers market is more favorable to home sellers.
In a seller’s market, there are more home buyers looking for houses to buy than there are homes available for sale. As home buyers compete for a scarcity of homes for sale, multiple offer situations, cash offers, and offers over asking price are not uncommon.
What does this mean for home sellers?
When it comes to a buyers market vs sellers market, home sellers generally have more wiggle room on pricing their homes for sale in a seller’s market. However, going too crazy with pricing a home in a seller’s market can backfire on a seller if the home buyer is getting a mortgage.
If a home buyer will be getting a mortgage, the house will need to appraise. If the house does not appraise for at least the purchase price, this can cause much wailing and gnashing of teeth and may potentially cause a deal to fail.
What does this mean for home buyers?
When buying in a seller’s market, preparation and responsiveness are key. While buyers getting prequalified before searching for homes is always important, this step takes on extra significance when buyers are competing in a seller’s market.
In a hot market, houses go quickly and the time for making an offer may be short. Before considering an offer, sellers want reassurance that a buyer can purchase their home. Being able to present a prequalification letter with an offer can mean the difference between a buyer having their offer considered – or not.
Giving sellers every reason to say yes to an offer both in terms of offer price and contract terms helps buyers increase their chances of having their offers accepted in a hot seller’s market.
Buyers market vs sellers market: A review
- A buyer’s market is when there is more than 6 months of inventory for sale – in other words, there are many more houses for sale than there are home buyers to buy them. When buyers have a larger variety of houses to choose from, sellers may end up competing with each other to get a buyer’s attention. Thus, buyers are in a stronger negotiating position than home sellers in a buyer’s market. Home prices are typically lower in a buyer’s market due to softer demand.
- A seller’s market is when there is less than 6 months of inventory for sale. In a seller’s market there is a lot of buyer demand and very few homes to buy. When there are few homes for sale relative to the amount of buyers, home sellers are in a stronger negotiating position. In a seller’s market, home buyers are put in the position of competing against each other to get a seller’s attention. This can result in multiple offer situations and offers over asking price.
Buying and selling homes does not happen in a vacuum. Knowing how the local real estate market is performing is valuable information whether you are a home buyer or home seller.
Home buyers and home sellers who work with their real estate agents to understand the state of their local market at the outset of their real estate journey are better equipped to make pragmatic decisions based upon their local real estate market conditions.
