Whether you’re in the market to buy or sell a property, timing is everything. And with timing comes knowing exactly if it’s a buyer’s market or a seller’s market. These terms also signify the present condition of the market.
For instance, a buyer’s market means it’s a good time to buy property, while a seller’s market justifies a good time to sell a property.
With this understanding, a buyer in search of a property will know when to start looking for properties on sale and, likewise, a seller will know when to put his or her property on the market.
Let’s consider a few factors that can help us determine a buyer’s market from a seller’s market, or vice versa.
Buyer’s Market
As the name implies, a buyer’s market is when market conditions are in favor of buyers, and that can mean a number of things:
1. Buyer has the advantage
A buyer’s market is the wading pool of a buyer, and the buyer is king. The buyer sets the standard, dictates the terms and conditions of a transaction, and decides on the best deal among a host of other viable deals. The seller, often competing for buyers, is less likely to reject a below-par offering from the buyer.
2. More homes to look at
The regular trend in a buyer’s market is supply usually transcends demand. More homes means more options for buyers to consider before negotiating a deal/offer. Most often than not, a property may sit on the market longer than originally intended.
3. No competition
Because supply exceeds demand in a buyer’s market, competing for ownership is quite rare. Buyers are not in a hurry to secure a home since they have a variety to choose from, even vague is the threat of missing out on the best deal. Again, competition is infrequent.
4. Few offers
With few buyers to go around, offers align with the number of active buyers in the market. And in a buyer’s market, few offers equate to a decline in both sales and prices, and sometimes way less than desirable for the seller. Remember, the buyer is king in a buyer’s market.
5. Amplifying properties to sell
Because the availability of houses for sale is greater than the demand, the dogma to be different than the rest is high among sellers. Touch ups here or there are apparent across each and every property impression, in order to evoke a successful sale. Sellers understand that standing out from the crowd can work wonders.
6. Fear
The fear that a deal may not be brokered as expected, or that one’s spouse may not approve of a property purchase, and what have you, is customary. In a buyer’s market, fear of this sort is usually high. But what we should understand is that, depending on how it is used, fear can be an effective tool in decision making, come time to broker a deal for a real estate transaction. In contrast, if you allow fear to overwhelm you, you will miss a lot of excellent deals.
7. Property construction slows down
Real estate builders know very well that once the market is flooded with properties, prices will drop as well as sales. This means little to no profit on behalf of the seller; thus, leading to a standstill.
Seller’s Market
In a seller’s market, expect everything to be completely opposite to a buyer’s market. The emergence of this market cycle means conditions are favorable for sellers.
This means:
1. Seller has the advantage
Just like a buyer in a buyer’s market, here, the seller holds the trident. Sellers do the talking, not the buyers. Sellers have a greater leverage in negotiations and buyers have very little to show for.
2. Limited inventory
The signature expression of a seller’s market is “demand exceeding supply”. What’s more, during this market cycle, buyers make-do with whatever the seller proposes. Limited supply, higher prices. That’s the bottom line.
3. Bidding wars
Upon listing, sellers are prone to multiple offers and may have to choose an offer above what was actually listed. And this is how bidding wars erupt among buyers; hence, bidding prices up and up.
4. Upward shift in prices
The less supply, the more demand, and an upward shift in prices. This is the accompanying trend in a seller’s market. Again, since there is a limited supply of properties on the market, buyers will be out in full to secure ownership, making it an ideal time for sellers to increase prices.
Moreover, buyers don’t have much leverage in negotiations in a seller’s market, therefore, will have to deal with increasing housing prices.
5. Cash flow decline
Everyone thinks that selling equals more money. In a sense, it is. But where time is of the essence, the ability to sell quickly can make or break a seller’s money-making potential. In real estate, the longer a house sits on the market, the more costly it becomes for the seller; hence, unnecessary stress on cash flow.
6. Higher prices
Ironically, a price is to a demand what a remora is to a shark. When demands are up, prices go up. When demands drop, prices decline.
Understandably, a seller’s market will have more buyers and few sellers. And since prices move hand-in-hand with demands, a seller’s market associates high sale prices with more demands.
7. Properties in poor conditions
Properties in dire conditions can be sold for a higher price in a seller’s market. Because of a limited supply, buyers competing for ownership tend to think their way round this variable, irrespective of the price and end up paying more for the home, anyway.
8. Builders are back in business
Builders and developers in the business of real estate are at their prime when a seller’s market rolls around. They see the signs, they know what to expect, they know that profit is on the horizon when demands are high, so they begin constructing new homes as much as they possibly can.
Conclusion
Understanding the difference between both market conditions can help you come out on top of your situation, and this can be strongly attributed to what compelled you to the market in the first place. But above all, always remember that a buyer’s market affirms a good time to purchase property, while a seller’s market justifies the ideal time to sell property. In essence, keeping an eye out for market trends is key to determining which condition is eminent.
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