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Shifts in supply and demand can create a "buyer's market" or "seller's market" for almost anything. In real estate, these terms refer to conditions that give an edge to either party in a home sale. In a buyer's market, conditions give the homebuyer an edge in negotiations on price and terms of the sale, and the home seller is the one with a leg up in a seller's market.
A buyer's or seller's market could be present as part of a national trend, as has been the case recently as home shortages and increased consumer demand have given home sellers the advantage. Regional and local buyer's and seller's markets are historically more common, however. These may reflect the changes in demand for homes in specific towns, neighborhoods and school districts as generations and populations shift.
Understanding the market conditions that create a buyer's market or a seller's market can help you frame your timing and strategy for buying or selling a home. Here are some guidelines for dealing with either situation.
What Is a Buyer's Market?
A buyer's market is one in which the supply of homes is abundant, houses take a relatively long time to sell, and home prices are flat or in decline. Under these conditions, it is relatively difficult for homeowners to sell their properties, and that gives buyers greater choice and opportunity to strike bargains on price and other terms of sale.
Strategies for Sellers in a Buyer's Market
Price your home realistically. A real estate professional can help you set a realistic asking price. Understand that you may need to consider bids that are lower than that amount if you want to sell the home quickly.
Spruce up. Do a full spring cleaning job, no matter the season: Clean windows, rugs and floors; power-wash siding; and consider repainting inside and out (or at least touching up the trim, front door, mailbox and garage doors). Tidy up the landscaping, and make quick repairs to steps, walkways and other spots that contribute to the first impression.
Stage for success. To better enable prospective buyers to picture themselves living in the house, dial back personal items that remind them you live there. Putting away toys (for humans and pets) and stowing family photos and other personal items may make the place feel less like home to you, but it also may make it easier for prospective buyers to imagine it becoming theirs. You can also pay a company to stage your house for you. This is a more involved process and isn't cheap, but it could help you get more money for your home.
Be flexible about closing costs. If a buyer is on the fence about choosing your house over another, sharing the burden of closing costs could swing them your way. Consult with your real estate agent or attorney for advice on how and when to communicate this offer to potential buyers.
Strategies for Buyers in a Buyer's Market
Take time to consider your options. A luxury of a buyer's market is the opportunity to see a lot of available properties. Make the most of that to be sure you find a great house, and also a community and neighborhood that match your wish list. You may have some time to mull your decision and check out a community before you make an offer, but remember that homes won't remain available indefinitely.
Prioritize the concessions you seek. You can expect the seller to be flexible in a buyer's market, but everyone also has a breaking point, and you shouldn't plan on making endless demands. With each property, work up a list of things you might ask for. For example, if cash is your biggest concern, asking for help with closing costs could make the most sense; if a new roof will be needed in a few years, consider asking them to take all or part of that out of the price. Specifics will depend on your situation and the property, but you should have a (reasonable) list of requests in mind when you make your purchase offer.
What Is a Seller's Market?
A seller's market is one in which the supply of available homes for sale is relatively tight, houses tend to sell quickly, and home prices are on the rise. Under these conditions, it is relatively easy for homeowners to sell their properties. Buyers must compete for available houses, and may have to sweeten their offers in order to stand out.
Strategies for Sellers in a Seller's Market
Pretend it's not a seller's market. Don't allow favorable market conditions to let you skimp on presenting your house in the best possible light. Do a thorough cleaning, spiff up the yard and make low-cost fixes before putting your home on the market so you'll attract the highest-possible offers.
Avoid giving a deadline for reviewing offers. Specifying a date when you'll consider offers may dissuade some of the most motivated buyers, who'll bid hoping you'll accept their offer immediately. (Of course, you're under no obligation to accept an offer on any bidder's timeline, but there's no reason to discourage eager buyers, either.)
Be realistic about offers that exceed your asking price. In the heat of a seller's market, buyers may be motivated to make purchase offers for more than the price you've set on the house. That sounds great, but keep in mind that buyers who require financing will not get a mortgage amount greater than the house's appraised value. So make sure high bidders are paying cash or can show they have sufficient money to cover the gap if the appraised value falls short of their offer price.
Review all offers carefully. Multiple bids are common in a seller's market, and it's to your advantage to review all of them in detail and not necessarily jump on the highest one. Consider the amount of earnest money that accompanies each deposit, the size of each potential buyer's down payment, any contingencies, potential willingness to give you extra time for moving after the deal closes, and so on. Consult your real estate agent and/or attorney to determine which offer is best for you.
Strategies for Buyers in a Seller's Market
Get mortgage preapproval. In a seller's market, you'll likely be competing with multiple rival buyers, and sellers will want every reasonable assurance that you can follow through on your offer. Mortgage preapproval isn't a guarantee of financing, but it tells a seller you have the financial means to cover your offer and it can speed final approval and reduce time to closing.
Consider bidding more than the asking price. Getting the house of your dreams in a highly competitive marketplace sometimes requires sweetening the pot with an offer that exceeds a home's listing price. Work closely with your agent to decide how much to offer, and keep in mind that you may not get financing on the full offer price if the appraisal comes up short. In that event, you may need some additional cash to cover your offer, so do all you can to prepare for that contingency.
Consider boosting your earnest-money deposit. Putting some extra cash in the good-faith deposit that accompanies your purchase offer could help your bid stand out. If your offer is accepted and financing goes through, the additional money will go toward your down payment. Beware, however, that if you back out of the deal for reasons that aren't specifically permitted in your purchase contract, you may have to forfeit some or all of that earnest money.
Be prepared for rivals who can pay cash. Investors with cash in hand make up a significant portion of the homebuyers in many markets, and the certainty of their offers can make them more attractive than those of competitors who require mortgage approval to finalize a sale. Take steps to make your offer competitive in the face of cash offers. For instance, you might be prepared to be flexible about terms of the sale, timing of the closing and other variables besides just price.
How to Determine if You're in a Buyer's or Seller's Market
Your real estate agent can let you know if you're in a buyer's market, seller's market or something in between (with relatively stable housing turnover and pricing). But here are some of the indicators to watch for.
- Average home price trends: When home prices are on the rise, you're likely in a seller's market; if they're in decline, it's a buyer's market.
- Number of days homes stay on the market before they sell: When houses stay on the market for months at a time, you're likely looking at a buyer's market. If they sell quickly after they're offered for sale, it's a seller's market.
- Market prices that exceed or fall below asking prices: In a seller's market, competition among potential buyers can lead to purchase offers over and above the asking price. In a buyer's market, by contrast, sellers may accept an offer lower than their asking price or reduce their original asking price to a lower figure.
The Bottom Line
Real estate markets are subject to cycles like the markets for many other goods, and a seller's market today could become a buyer's market in a year or two as housing supply and demand ebb and flow. Understanding the hallmarks of each type of market, and adopting applicable strategies can help you cut the best possible deal on a home sale, no matter which side of the transaction you end up on.
For buyers, credit health is an especially pertinent concern. Before you start the process of securing a home mortgage, be sure to understand the information on your credit report and how it affects your creditworthiness. With Experian CreditWorks℠ Premium, you get access to the same credit scores mortgage lenders use, so you'll know exactly where you stand.