Seller's Versus Buyer's Markets, and How to Navigate
There are 3 types of markets: a buyer’s market, a seller’s market and a neutral market. In this post, I’ll be highlighting the first two, and what you can do to prepare for each situation as a buyer and a seller.
Buyer’s Market
A buyer’s market is a market where the buyer has the advantage. In a situation like this, there are more sellers than there are buyers. Another way of saying that is, inventory is high, while there’s a shortage of buyers. When this happens, prices tend to drop. If an owner is trying to sell their property in a buyer’s market, they’ll need to be open to negotiating.
Buying in a Buyer’s Market
As you could surmise, this type of market is great if you’re looking to buy property. You’ve likely got many options and are in a position to negotiate. You’re also not competing with as many other buyers. If you’re looking to purchase in a buyer’s market, see as many properties as you can. When you find the one you want, you’re in a better position to know the market. You can compare units and prices and are more able to determine a fair price. Another thing to consider, is how long a property has been on the market. If a property has been listed significantly longer than similar units, the seller is probably even more open to negotiating and probably realizes they’re asking too much. On the flip side, generally the first offer a seller gets is the best offer. If you can see and make an offer on a property right when it comes on the market, you’re in a good position. If you see and make an offer on a property that’s been on the market for a year, you’re also in a good position.
Selling in a Buyer’s Market
Selling in a buyer’s market is a little more tricky. As a seller, you really needs to make your property stand out. (Here are some easy tips to increase your home’s value). Ensure that everything is in working order, and clean. If you’re working with a good Realtor, they’ll have professional photos taken and a comprehensive marketing plan to get your property in front of the right buyers. You’ll also need to consider the price. Asking too much can scare buyers away, but you also don’t want to give your home away. If there’s a number in your head that you need to get, and it doesn’t necessarily align with the market, be prepared to wait.
Seller’s Market
A seller’s market is defined by demand exceeding supply. There are more buyers than sellers. Another way of putting it, is inventory is low. This drives prices higher and creates a more competitive market, which is usually advantageous to homeowner’s looking to unload. In a seller’s market, properties generally sell faster and for more money. Anyone who’s looked at buying a home in Boston knows that it’s been a pretty consistent seller’s market. Everyone wants to live in Boston!
Buying in a Seller’s Market
Looking to buy in a seller’s market can be frustrating. It’s important to be prepared. Don’t even think about looking at a property if you’re not already pre-approved. It’s also important to know your budget, and what the most you’re willing to spend is. Having a flexible timeline can make for a more competitive offer. This is not a time to negotiate for repairs or concessions. It can also strengthen your offer to forgo contingencies. Contingencies like inspection, appraisal, financing or home sale are all opportunities for a buyer to back out. With that under consideration, a cash offer is going to be much stronger than if a buyer requires financing, even if it’s not the highest offer. Just recently a client of mine put in an offer to buy his first home, but was rejected. His offer was the highest, but the seller accepted an all cash offer that didn’t require an inspection. This can be very frustrating, but it’s crucial to keep emotions out of it. That’s why it’s important to really know the top of your budget, and hold to it. You don’t want to get into a bidding war in the heat of the moment, only to have regrets later.
Selling in a Seller’s Market
This one’s a little easier. As a seller, you’re in the position of power. But that doesn’t mean you don’t have to do anything. It’s still necessary to have the home in good, clean condition. And just because the seller has the advantage, doesn’t mean you can ask a ridiculous price. That could scare potential buyers and not even get them through the front door. Alternatively, some prefer to price their home slightly below market value, in an effort to incite a bidding war, where emotional buyers may pay over market rate. Once offers are submitted, it’s important to really consider the offers, and your situation. The offer is about more than the money. You need to consider the likelihood that the buyer will follow through, and that the time frames work for everyone.
Which Market are You In?
So how do you know when you’re in a buyer or sellers market? The neighborhood gossip might not be enough. A pretty easy way to get an idea, is to look at recent sales. Are homes selling at, below or above asking price? If below, it’s a good time to be a buyer. If homes are going for over asking, it’s a good time to sell. Now this is just a to get an idea, and isn’t really an accurate representation, but it can be helpful. You can also look at current listings and see if there’s a trend of on-market homes lowering their asking prices.
Another way to tell, is to divide the total of number of homes on the market in the area that you’re looking, by the number of homes sold in the same area in the last month. This number tells you how fast the homes are flying off the shelf. If the number is larger than 7, you’re looking at a buyers market, where there are more homes for sale than potential new owners. If the number is below 5, it’s a seller’s market with a shortage of inventory.
If you or anyone you know is looking to buy or sell, I’m your Realtor! Please feel free to reach out with any questions. You can call or text me at 617 528 8461 or email me at willy.charleton@nemoves.com