We operate in a world where categories are appreciated. We like to put things into neat compartments that allow for easy sorting, and the real estate market is no different.
Listen carefully and you’ll hear agents and investors mention “buyer’s markets” and “seller’s markets.” If you’re looking to buy or sell in the near future, you’ll want to know which category your local market fits into … and what it means for your prospects of completing a transaction.
What are Buyer’s and Seller’s Markets?
In the most basic sense, a buyer’s market occurs when there is more supply in a neighborhood than demand. This gives buyers a lot more control, because there’s no urgency to make a purchase immediately.
They don’t have to worry about competition from other prospective house hunters. Sellers begin to compete against one another for the lowest list prices, and buyers enjoy lots of room for negotiation.
A seller’s market is the opposite: There’s more demand than supply. As a result, sellers gain the upper hand. When they choose to put their property on the market, they’re able to charge a premium and typically expect to complete a sale much faster.
While it would be convenient to say, “This city is a buyer’s market and this city is a seller’s market,” it doesn’t necessarily work out this way. Given so many different types of neighborhoods and homes, it’s possible for a single zip code fragment into multiple buyer-friendly and seller-friendly markets. And things can change at a slow pace.
“Buyer’s and seller’s markets don’t last forever. It’s hard to predict what the market will do with any accuracy and things change slowly,” says a real estate agent in Northern Maine.
“You might end up waiting months or years for things to change. And when circumstances do change, it may not be in your favor. This is an important factor to consider when you’re deciding when to buy or sell real estate.”
Three Signs You’re in a Seller’s Market
Although it’s hard to make a blanket statement about every neighborhood in a state or the country, chances are pretty high that you’re currently operating in a seller’s market. Here are three tell-tale signs to verify that this may be the case in your neighborhood:
1. Not a Lot of Inventory
The first thing sign to look to determine whether you’re in a seller’s market is the volume of properties on the market. You can use a basic tool like an online listing site to gather this information or the services of your agent, who has access to the MLS.
If there simply aren’t many listings (less than three months of inventory is a good rule of thumb), then you may confidently assume the sellers have an advantage.
2. Bidding Wars are Common
Talk with your agent and ask about how many bids the average listing has been getting in your neighborhood. If properties are getting multiple competitive offers — and potential buyers are having to come back with stronger second and third offers to have a chance — then you’re in a market where bidding wars are the norm.
According to Lindsay Dreyer, the owner of a Washington D.C.-based real estate firm, “[Bidding wars] are really common on properties with a trifecta of price, really good condition and really good location.”
3. Under Contract in No Time
If properties in your area are going on and off the market within 24-48 hours, then you’re definitely in a seller’s market. This is a signal that buyers are vigilantly waiting and looking for their next home and have a sense of urgency about getting an offer in as quickly as possible.
What Buyers and Sellers Need to Know
So let’s assume you’re in the middle of a seller’s market. What does that mean if you’re looking to purchase a house? What if you’re a seller? How can you get the most value for your transaction?
Take a look at some of the things each side needs to grasp when it comes to transactions in a seller’s market.
- Buyer: Be ready to move. If you hope to make a successful purchase, you have to be ready to move fast. You never know when a home that meets your criteria will come on the market — and you want to be able to place an offer as soon as it does. This means getting pre-approved for the loan, preparing to sell your current home, discussing details with your landlord, etc. (whatever the situation may be).
- Seller: Have a strategy. As a seller, you need to be prepared to deal with multiple offers. While it’s easy to say you want to accept the first full-price offer you get, recognize that taking multiple offers may allow you to drive up your price. If you don’t have a strategy, you could become overwhelmed and end up selling considerably cheaper than what’s possible.
- Buyer: Don’t get emotional. If you’re a buyer, you can’t let your emotions get the better of you. You’re going to strike out. You may miss out on the “home of your dreams” more than once. Take a calculated approach and don’t let your emotions control your checkbook.
- Seller: Disclose everything. As a seller, it’s imperative that you disclose everything up front. Go ahead and mention that the roof needs to be replaced, or there’s some mold in the basement. With so many potential buyers on the prowl, you’ll probably still be able to sell. If this kind of crucial information doesn’t come out until further down the road, you may miss your chance to get a full-price offer.
Regardless of whether you’re a buyer or seller, you need to understand the intricacies of a seller’s market. There are advantages for both sides, but you can’t go into these situations unprepared.
Contact Green Residential Today
At Green Residential, we understand the ins and outs of the Houston real estate market. Over the years we’ve seen peaks, valleys, and everything in between.
If you’re looking to align your family with a real estate company that’s knowledgeable and friendly, you’ve come to the right place. Contact us today and we’ll show you why we’re widely considered one of the best in the industry!