What’s the difference between a buyer’s and a seller’s market?

What’s the difference between a buyer’s and a seller’s market?

 

Is the U.S. real estate industry in the midst of a buyer’s market or a seller’s market? The answer depends on where exactly you’re focusing. The difference between a buyer’s market and a seller’s market isn’t always obvious, but it’s important to understand this nuance.

What is a buyer’s or seller’s market?

These two terms often appear in the context of the housing market to describe broad economic conditions. They also are closely intertwined with the concepts of housing supply and demand.

“Supply and demand creates the conditions of a buyer’s or seller’s market.”

To briefly sum up a fundamental concept of economics: A relationship between market value and product supply and demand often exists. When demand for an item exceeds its supply, sellers can command higher prices. This is the basic definition of a seller’s market. When the opposite is true (supply exceeds demand), sellers usually have to lower their prices to get any traction. An excess of supply of homes along with low demand define a classic buyer’s market.

In real estate or any other industry, it’s never entirely clear whether a market currently favors buyers or sellers. Economists and real estate experts do try to estimate the characteristics of a local market by analyzing metrics like:

  • How many days on average it takes for homes to sell in the area.
  • The difference between listing prices and sales prices.
  • The number of advertisements for real estate in the market.

In recent years, the U.S. housing market as a whole has been considered a seller’s market by most economists. The Washington Post reported that median real estate prices have risen 40 percent between 2013 and 2018, while fewer homes are coming on the market. The overall condition of the U.S. economy has increased demand for housing, but market supply has not matched that metric in most cases. This has generally allowed homeowners to leverage their properties to sell for the best price.

Tips for buyers in a seller’s market

Purchasing a home in a seller’s market is possible, and can be done at a fair price. Buyers will need to be prepared to move quickly on a house that’s in line with what they are looking for, and rely on an experienced agent to facilitate negotiation.

Homes purchased in a seller’s market may not necessarily sell for more money. However, buyers will need to put their best offer forward first. This may include a larger earnest money deposit or an offer with fewer contingencies.

Homebuyers in a seller’s market should also have their finances in order well before the offer process kicks off. Be sure to obtain mortgage preapproval, as well as the correct proof of funds documentation once the offer is ready to be submitted. If the preapproval letter’s date and price are matched to the offer, it can make a small difference in edging out competition from other buyers.

When it comes down to it, buying a home in a seller’s market is possible. You just need to know the tips and tricks involved in making that offer count.

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