Real estate transactions can be time consuming, overwhelming, and expensive, regardless of whether you are the one buying or selling, and, depending on its condition, the state of the market in your area can either alleviate or exacerbate these feelings.
Generally, a healthy real estate market benefits both buyers and sellers, with a variety of homes available to choose from and relatively stable and affordable prices that are based on the financial health of the location you’re in. But sometimes, the scales can tip one way or the other, which can end up benefitting one party more than the other. These markets are most often referred to as either buyer’s markets or seller’s markets.
So, what exactly do these terms mean to buyers and sellers and which party benefits most from which market? We’ll cover that and more in this post in order to give you a clear understanding of which market conditions you may want to conduct your next real estate transaction in.
What is a Buyer’s Market and Who Benefits From it?
A buyer’s market refers to a real estate market in which there are a lot of competitively priced homes available for sale in a specific location, like a city. In this type of market, buyers typically have the upper hand.
In a buyer’s market, home sellers must compete with one another to sell their properties. With so many homes on the market, home buyers can be pickier about things like the curb appeal of the home, what renovations or upgrades have been done, and, most importantly, the price.
This means that home sellers who are highly motivated to sell may need to lower their asking price, complete high-value renovations (like a kitchen or bathroom revamp), or offer other incentives that could encourage a buyer to commit (like including a home theatre system or upgraded appliances in the sale of the home).
Buyers also have more opportunity to negotiate pricing in this type of market, and a homeowner who needs to sell their home may be more open to accepting a lower offer on their home than what they paid for it or what it has been appraised for, depending on how desperate they are to sell.
However, home sellers who can stand to wait may want to hold out for a more stable market, or, if they can, a seller’s market, in which they would have potential to reap significant financial benefits.
What is a Seller’s Market and Who Benefits From it?
A seller’s market is when there are a lot of home buyers looking to purchase, but few homes on the market in a given area. Sellers benefit the most in these market conditions.
Contrary to a buyer’s market, in a seller’s market, home buyers are the ones who must compete with each other for available homes. This means that sellers can up their asking prices, sell homes that may not have sold otherwise (for example, homes that need significant repairs or upgrades), and may even be able to reject lower offers and hold out for better ones with confidence.
In some seller’s markets, home owners can see their homes sell for significantly more than they initially paid for it.
What Causes a Buyer’s or Seller’s Market?
The real estate market can be influenced by a number of different factors that can determine whether home buyers or sellers will come out on top.
Some of the most impactful market fluctuations can be caused by:
The local economy
Take an area like Silicon Valley, for example. It’s considered to be a global tech center, attracting tech professionals from all over the world to work for some of the biggest and most well-known companies that exist today, such as Google, Facebook, Apple, and more. Startup hopefuls and tech professionals flock to the area to live and work in one of the world’s most influential tech hubs.
With a booming economy comes a need for housing, which is a major issue that affects the market in Silicon Valley. For example, in Cupertino (where Apple is headquartered), the median home value is $2.2 million. This makes Silicon Valley a seller’s market since there are fewer homes available for purchase and their listing prices can be astronomical.
Alternately, if the local economy were to suddenly plummet in Silicon Valley, it could easily become a seller’s market, with people who purchased high-priced homes looking to get rid of them quickly and at a potentially lower asking price.
Home values can also fluctuate based on the neighborhoods they are located in. For example, if a city plans to revitalize a previously worn-out and undesirable area by building a new NHL arena, it’s likely that those developments will influence and encourage a seller’s market at some point.
As well, other homes in the area can affect the market. For example, in a newly-developed subdivision, there won’t be existing historical property values to base purchase prices off of. Instead, sellers will need to determine a price based on other factors, like the cost to build the home and so on. However, the more people that purchase homes in the area, the more desirable it becomes, which can lead to a seller’s market as well.
Historical property value and desirability
While less focused on time-sensitivity than things like booming economies and new amenities, historical property values and the location’s reputation can also play a role in what type of housing market takes precedence in a given area.
In areas with low desirability (either from crime, lack of amenities, poor curb appeal, etc.), houses tend to be less expensive, with historical property values that reflect that, even if they are new builds or upgraded homes.
In areas with low historical property values and desirability, buyers may be able to take advantage of new developments in up and coming areas where prices may be lower than other areas where historical property values are higher. Buyer’s markets can happen in new subdivisions where property values have yet to be adjusted for the newly developed area, getting buyers more bang for their buck.
Determining The Best Move For You
Whether you are buying or selling, chances are you have little to no control over the housing market in your area. The best that you can do is to pay attention to the trends, consider your motivations and timeline, and sell or buy in the most ideal market conditions that you can. While buyer’s and seller’s markets can tip the scale, buying or selling in a stable and healthy market isn’t a bad option either, so focus on your goals, keep an eye on the market, and time your move as strategically as you can to get the most out of your next real estate transaction.