As a real estate investor, you have probably heard industry watchers and commentators throw terms like “buyer’s market” or “seller’s market” around. Yes, people in the real estate industry love to use slang and acronyms, but these are not just fancy words. They define the prevalent conditions in a specific housing market.
Whether a housing market is described as a “buyer’s market” or “seller’s market” matters to the kind of investment strategies you should use. Knowing the meaning of the terms and identifying the kind of market you are in will make you a better investor. You will find it easier to make buy or sell decisions that let you get the most of any given market.
What is a buyer’s market or seller’s market, and how should each influence your investment strategy?
What is a Buyer’s Market?
In a buyer’s market, overall market conditions are in the buyers’ favor. More owners want to sell their homes than there are buyers for the homes. This imbalance gives buyers the edge during negotiations. As a result, in a buyer’s market, you will have the following:
- Buyers will have their pick of houses.
- Sellers will be under pressure to find buyers.
- To get an edge over other owners, sellers will be more willing to make concessions.
- As a result of competition between sellers, the prices of homes will drop.
How to Buy in a Buyer’s Market
Make A Lowball Offer
In all likelihood, the home is already priced below market value. But the owner can be expected to go even lower. Make an offer below the list price. The owner knows they may not get another offer.
Ask the Seller for Concessions
In a buyer’s market, sellers are often willing to make concessions to buyers, such as paying part of the closing costs. But they may not advertise this fact; if you don’t ask, you won’t get it.
Ask the Seller to Fix Any Damage
Another way to extract the maximum value from a deal in a buyer’s market is to ask the seller to do important repairs. As a matter of fact, sellers in a buyer’s market will often do this before selling their homes.
How to Sell in a Buyer’s Market
What happens when you are on the other side of the equation; a seller in a buyer’s market?
Do a Pre-listing Home Inspection
Buyers always have questions about the true condition of a home. They will always wonder if there are underlying problems. A pre-listing inspection creates transparency and makes the home more attractive.
Make an Unrefusable Offer
Doing repairs to any damage highlighted by the inspection report and being ready to make concessions will make the deal sweeter.
Stage Your Home
Many sellers won’t stage their homes in a buyer’s market because it is an additional cost. However, even if you are selling at a lower price than you would like, staging the home will reduce its time on the market. This will help you save on carrying costs.
What is a Seller’s Market?
In a seller’s market, the advantage is with the property owner because more people are looking for a home to buy than homeowners willing to sell their homes. As a result of more money chasing fewer houses, the prices of homes in a seller’s market increase, and homeowners have the edge during negotiations. The defining features of a seller’s market are:
- It is hard for buyers to find the homes they want
- Consequently, you have many buyers chasing a single property
- This results in price wars between buyers
- And it drives the prices of houses even higher
How to Buy in a Seller’s Market
Get Preapproval
The home you want will not wait; while you are trying to get the mortgage, a more prepared buyer will pay for it.
Never Make a Lowball Offer
Instead, you should make an offer slightly above the list price. Many sellers will make an offer equal to the list price, but a higher offer will naturally be more attractive to the seller.
Act Decisively
When buying in a seller’s market, you must act with speed. If you find a home you like, do not think it over; make an offer immediately.
Prepare for Bidding Wars
Other buyers will be interested in the property. Be ready to make concessions and find ways to sweeten the deal. One way is to not make demands on the seller.
How to Sell in a Seller’s market
List Slightly Below Market Value
You can catch buyer’s attention with this strategy and probably start a bidding war.
Expect Concessions
Look for offers that do not require you to make repairs or buyers who offer to pay some of the costs you normally pay.
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