Whether you want to build your investment portfolio or buy your first home, determining if it is a buyers market can be helpful. With that information in mind, you can decide if it is the right time to move forward with your plans. Let's take a closer look at what a buyers market is and break down the difference between buyers’ and sellers’ markets.
What are buyers markets?
A buyers market comes into play when the supply of an item exceeds the demand for an item. When the supply of an item outpaces the demand, there is a surplus of inventory which allows buyers to have more selection available and fewer competitors. With that, buyers can be more selective and price sensitive.
For example, in a real estate buyers market, homebuyers can afford to take their time. Instead of pouncing on a house to offer the asking price, potential buyers may take their time in coming to a decision. If the buyer decides to make an offer, it is likely that the offer will come in under the asking price. After all, the seller likely has few other buyers lined up. With that, the buyer is at an advantage.
What are sellers markets?
On the flip side, a sellers market is the reflection of a situation when the demand for an item exceeds the supply of an item. When the supply of an item is limited, the sellers are placed in a better position. With that, prices often rise and sellers have multiple interested buyers lined up.
For example, in a real estate sellers market, sellers can typically command higher prices. Buyers are typically more motivated to move quickly and make an offer for the asking price or higher. As the seller, there are likely many interested buyers which can create higher prices and a competitive market for buyers. It is not uncommon to see bidding wars break out over houses on the market.
Although these lines of thinking can apply to any kind of marketplace, it is common to hear the terms buyers and sellers market in real estate and the stock market.
What is the difference between buyers and sellers markets?
The major difference between buyers and sellers markets is the available inventory. When there is too much inventory available, then a buyers market can surface. If there is not enough inventory, then sellers can take the upper hand in a sellers market.
Typically, a buyers market will lead to lower prices. In the case of real estate, homes will typically stay on the market longer in a buyers market. Plus, sellers have to be more willing to negotiate for a lower price in order to close the deal.
On the other hand, sellers markets in real estate will lead to a shortage of available homes. With that, buyers are forced into a competitive environment and often have to enter a bidding war to close on a house.
How to tell if it is a buyers market or sellers market
Although a buyers or sellers market can exist in any marketplace, let’s focus on the real estate space. Here’s how to tell if it is a buyers or sellers market.
Look at the inventory
The first factor to consider when determining if the market is ideal for buyers or sellers is to take a look at the inventory available. If there seems to be a plentiful number of homes on the market, then it’s likely a buyers market. But if available homes are scarce, then the area may be in the midst of a seller's market.
Check out the pricing
As you scope out potential properties, look to see if similar properties have been selling quickly. Short times on the market could indicate that you are in a sellers market.
Another point to check out is whether or not homes have been selling above or below the asking price. If homes have been selling below the asking price, then you are likely in a buyers market. If homes have been selling above the asking price, then you are likely in a sellers market.
Not sure where to check out home prices and time on the market? Zillow is a great resource to help you do some research on the home prices in your area. Redfin is another useful tool to help you explore home prices in your market.
How to succeed in a buyers market or sellers market
Once you’ve determined that you are in a buyers or sellers market, you can move forward with that important information in mind. The good news is that it is possible to succeed as a buyer or seller in either market. But you’ll need to deploy different strategies to achieve your goals in the different markets.
Succeeding in a buyers market
Here’s what you need to know in a buyers market.
As a buyer in a buyers market, you’ll enjoy plentiful opportunities to buy. In order to take full advantage of this chance, do your research about the type of property you want. When you find the right property for you, then you can make an offer. Depending on the local market, you may be able to obtain a property below the asking price.
As a seller in a buyers market, realize that you are at a slight disadvantage. However, you can take action to make your home stand out. Start by making any repairs that a picky buyer won’t want to deal with. Next, tidy up the space and pull out personal mementos wherever possible. Finally, price your home competitively and work with a professional real estate agent that will market your home effectively.
Succeeding in a sellers market
Here’s what you need to know in a buyers market.
As a buyer in a sellers market, you should expect fierce competition among other buyers. If you come across a property you love, take action quickly. It’s a good idea to get preapproved ahead of your home search so that you can make an offer right away.
Although it can be frustrating to tour several houses without being able to close quickly, patience is key. The right house for you will come along, with the right price tag to match. If you have a place to live, you may want to slow down your home search in a sellers market and swoop in when the market slows down.
As a seller, you are at an advantage in a sellers market. But you should still take care to tidy up your home and price it fairly when you put it on the market. Since you’ll have the upper hand, you may have to sift through several offers. As you wade through the potential buyers, look for buyers that are preapproved or have the funds available to purchase the home. Also, keep an eye out for contingency offers that could allow a potential buyer to back out of the deal.
The bottom line
A buyers market sets up ideal conditions for potential buyers. But sellers may be less pleased with their opportunities. However, it is possible for both parties to reach a fair agreement in either situation.