New and experienced homebuyers will never know what market is trending just by browsing the neighborhood. Sellers won’t know the market just by adding a for-sale sign on the house. An experienced and educated real estate agent will know the difference and tell you but understanding the difference is a better option. The differentiation determines which side has the upper hand in inventory, home price, and bargaining power.
The Seller’s Market
Less inventory, or homes on the market, gives sellers control in negotiations during the home buying process. Buyers are at the sellers’ mercy in this environment, so buyers must compete with other buyers for the properties available to win the property. Homes sell fast in a seller’s market, so buyers must search for a home and bid quickly. Expect negotiations between the buyer and seller, bidding wars between buyers, and contingency plans from the seller. Expect sellers to turn down offers in search of the best offer, which is over the asking price. Additionally, expect buyers to overpay for the desired home or settle for an undesirable house, which contributes to buyer’s remorse. The environment gives off a beggar’s cannot be choosers vibe.
The Buyer’s Market
A home surplus gives buyers the freedom to browse, compare, and select whatever house they want. The lax environment for buyers is a feeding frenzy for sellers. Since there are more homes than buyers, sellers must lure buyers to their property in hopes of
a bid with no guarantee of getting one. Strategies include price reductions and incentives. Therefore, homes mostly sell slowly in a buyer’s market. Meanwhile, buyers can negotiate for home price, contingencies, and incentives, and buyers can pass up homes for reasons such as cost, mortgage requirements, repairs, and seller contingencies. Buyers prefer to buy homes at or below the asking price. Sellers risk their home sitting on the market for months if buyers and sellers cannot negotiate.
How Can You Spot the Difference?
You know a seller’s market and a buyer’s market exist, but how do you know what market you are entering?
A telltale sign of a buyer’s market is the location. If the neighborhood is a high-crime area or a big company relocates, sellers may counter the decline and reduce turnover by reducing the home’s sale price. A second sign is cold listings. Listings lasting six months or more on the market give buyers room to negotiate and score a great home for less money.
A telltale sign of a seller’s market is low-interest rates. Buyers who obtain mortgages believe now is the time to buy, yet everyone has the same thought, so the buyers get competitive over the property. A second sign is a low inventory. If you notice that every home you want is off the market because the seller sold the house, it is time to worry.
Buyers and sellers would want the market to swing in their direction, but succumbing to both sides is impossible. The better approach is learning about the market and preparing to negotiate in both. You can get a fantastic home in a great neighborhood through market research, a real estate agent, and knowing your wants and needs upfront.