The Difference Between a Buyer’s and Seller’s Market and Why You Should Care
You can characterize your local housing market in two ways: a buyer’s market or a seller’s market. Understanding the difference lets you know when to look for a home and when to sell one. Here’s how to tell which is which, and how to use that insight.
What Is a Buyer’s Market?
A buyer’s market has more homes for sales than there are buyers. This imbalance in the market favors buyers. Homeowners are often more willing to negotiate and lower their asking price. Buyers have an advantage the longer a home stays on the market, and when sellers lowered their initial price.
What Is a Seller’s Market?
A seller’s market has more buyers than homes for sale. The market favors sellers, because there is high demand for real estate, yet a limited inventory. Buyers may find themselves in bidding wars that increase the asking price of homes.
Determining the Market
So, are you in a buyer’s market or a seller’s market? That depends on a couple of factors, such as the annual change in house prices and mortgage interest rates. Perhaps the most useful factor is the number of houses currently on the market.
The total inventory depends on your local housing market. Fifty single-family homes is a good size inventory for smaller cities, like Marion, Ohio and Holland, Michigan. But fifty is a very low inventory for larger cities, like Reno, Nevada, and Asheville, North Carolina.
If the current inventory can sustain seven months or more of sales, it’s a buyer’s market. If the number of houses can only last for five months or fewer, it’s a seller’s market. Anything in the middle is a balanced market.
To calculate the market, take the number of houses for sale and divide it by the number of sales in the last 30 days. If there are 200 homes available and only 20 sales, you have enough inventory for ten months and a buyer’s market.
Not a fan of math? That’s alright. Here are some other signs to distinguish buyer’s and seller’s markets:
SIGNS OF A BUYER’S MARKET
- Surplus of house listings
- Few buyers looking for homes
- Sellers are willing to negotiate
- House prices are falling
- Interest rates are low
- Houses stay on the market longer
SIGNS OF A SELLER’S MARKET
- Few house listings
- There are many buyers
- There are bidding wars and multiple-offer situations
- House prices are rising
- Interest rates are high
- Houses sell quickly
What to Do in a Buyer’s Market
IF YOU’RE BUYING A HOME
As a buyer, you’re in the driver’s seat. You have room to negotiate and don’t have to worry about bidding wars. The odds are you’ll have a faster and smoother than normal home buying experience.
Keep a close eye on the market. Try to find homes listed for a few months or that dropped the asking price. Sellers with recently listed homes are less likely to waver on their original price or make concessions.
A buyer’s market means you can negotiate more aggressively. Consider asking the seller to cover the closing costs or post-home inspection repairs. You might surprise yourself at the concessions.
IF YOU’RE SELLING A HOME
It’s not the end of the world selling in a buyer’s market. You might have to get creative, though. Try adding incentives to entice potential buyers, like new appliances or covering homeowner’s association costs.
Buyers can be picky during a buyer’s market. Taking a little extra time to clean and stage your house can set your home apart. Here are a few proven tips to improve curb appeal:
- Paint the walls a neutral color
- Depersonalize and declutter your home
- Focus on high ROI home improvements
- Maximize natural light in the home
- Make your home more energy efficient
- Invest in landscaping
- Power wash the driveway and windows
Try to set realistic expectations about the price, too. We understand the emotional and financial investment at stake, so this is easier said than done. Maintaining flexibility and an open mind will ease the selling process, whether you’re in for the short or long haul.
What to Do in a Seller’s Market
IF YOU’RE BUYING A HOME
Be on your toes if you’re buying during a seller’s market. Swift and smart decisions are imperative to lock down your dream house. One tip to stand out is to get pre-approval before your shopping. It shows sellers you're serious and determines how much home you can buy.
A seller’s market requires an open mind when you go house hunting. The real estate inventory is limited, so be willing to consider a range of houses. A seller’s market is also not the time to get creative with lowball offers.
Don’t forget that buyers and sellers are people. You may woo a seller by adding a personal letter with your offer. It lets you explain why you want the property and can get you in the seller’s good graces.
IF YOU’RE SELLING A HOME
Many of the previous tips for sellers apply here. The difference is now you have control. Investing in staging and renovations will make your home more stand out and possibly add extra cash in your pocket.
Do your research before listing your home. Overpricing your property is one of the few ways you can undercut yourself in a seller’s market. Not sure how to price your home? Check out similar houses in your neighborhood or talk to your realtor.
Be prepared to field multiple offers at once. Sellers have more leverage, so you have room to counteroffer and increase your price. In the meantime, have a plan to move to your next residence in case you get an attractive offer immediately.
The Bottom Line
Whether you are buying in a seller’s market or selling in a buyer’s market, remember to tailor your approach to the current housing market. Your approach will influence everything from how long a house is on the market to the final price. A well-planned strategy will let you make the best decisions for your family and bank account.