A Seller's Market vs. a Buyer's Market
Getting into real estate is like dipping your toe in the ocean; you want to know if the water is warm or cool before you jump in. The answer influences what you do next.
When you’re testing the temperature of the real estate market, it’s to see if it’s a seller’s or buyer’s market. In a seller’s market, there is a wealth of hungry buyers but not enough houses to go around, giving sellers the advantage. In a buyer’s market, there are plenty of homes for sale but not many interested buyers, giving buyers the edge.
Whether you’re buying or selling, the current market climate will affect every step of the process.
- Seller’s Market: Let’s face it: most houses in a seller’s market will generate interest even if they’re not in perfect condition. A seller has few incentives to renovate their home when they stand a good chance of selling it anyway. However, many real estate agents recommend thoroughly cleaning and staging any home going on the market. Some sellers may take it a step further by making minor repairs.
- Buyer’s Market: When buyers have lots of options in front of them, they can choose the cream of the crop. In this climate, sellers must get their homes in the best shape possible. Bankrate notes that investments around $20,000 tend to yield a return about the amount it would take to renovate a moderately-sized kitchen.
- Seller’s Market: When buyers are plentiful but houses are hard to come by, a home can have several buyers interested in it, all trying to outbid each other. For the seller, this is an ideal situation. The seller will likely get at least their full asking price and quite possibly more, according to Realtor.com.
- Buyer’s Market: When it seems like half the neighborhood is trying to sell their houses, but few shoppers are in the market, high prices will only hamper interest. Anxious sellers, watching their homes linger on the market, will lower their prices in the hopes of attracting a buyer.
- Seller’s Market: For buyers, speed and decisiveness are of the utmost importance. According to Zillow (zillow.com), during the hot seller’s market in 2021, nearly half of all listed homes had contracts in a week or less. Homes move quickly because buyers are afraid of losing them.
- Buyer’s Market: During a buyer’s market, even nice homes can remain unsold for months. Without the competition of other buyers flooding the market, there’s no need to race to put in a bid. Instead, buyers have the luxury of taking their time.
- Seller’s Market: Since sellers can be picky about which bid to accept, they’d prefer to pick the one with the fewest contingencies. Contingencies are terms that must be met before closing; otherwise, the buyer can back out of the contract. Savvy buyers make offers with little to no contingencies to elbow out other buyers.
- Buyer’s Market: The advantage is firmly on their side. Buyers have more leverage to ask for repairs, improvements, and even appliances or furniture. They can even ask for the seller to absorb closing costs. Sellers, worried about losing the chance of a sale, are more likely to agree to terms like these in a buyer’s market.
It’s easy to see that not understanding the climate of the real estate market can lead to significant losses. For example, a seller not realizing they have the advantage in the market could miss out on a larger profit, while a buyer not knowing it’s a buyer’s market could move too quickly and spend too much. If you’re unsure, rely on your realtor, for whom staying up to date is a daily part of their job.