For many people, real estate terms are another language. The lingo, acronyms, and countless “insider” terms are enough to leave people wringing their fists. Fortunately, some of the terms are straightforward and easy to understand. However, they can still confuse those with little understanding of real estate. This article will cover the difference between a buyer’s and a seller’s market in real estate.
Understanding a Buyer’s Market
When the housing market has more home’s for sale than current demand, it is known as a buyer’s market. Essentially, there are more houses on the market than available buyers. These conditions tend to favor buyers both in terms of having more choices to help them get more of exactly what they think they want and when it comes to negotiating a price.
When inventory is high, homes sit on the market for sale longer than they would if the demand was high and that can weigh on a seller who may lower their offering price to entice buyers to purchase their exact home. And with buyers having more choices and some sellers lowering their price, ultimately when trades go through, the local market has new data which may, in turn, be helpful to other buyers applying those metrics to the unit they seek and convincing a seller why their offer price is too high.
It is obvious sellers should avoid listing their homes for sale if the market favors buyers. However, some circumstances are beyond the seller’s control, such as a change in employment, job loss, or a host of other factors may require a homeowner to sell when conditions are unfavorable. If any of these situations or another one lead to a seller having to sell their home quickly in a buyers market, ultimately they will have to entice a new buyer by creating a bargain price that makes their home stick out and draws attention and offers.
Understanding a Seller’s Market
A seller’s market occurs when the demand for homes for sale is higher than the available supply. In this market, sellers often receive multiple offers with prices that are much higher than the original list price. Homes for sale in this type of market sell much faster than a buyer’s market, and intense bidding wars among buyers often drive the sales price higher.
Buyer’s in this market must move fast and overcome serious roadblocks (most notably having multiple buyers competing for the same property). Experts suggest buyers in this market should prepare all their paperwork before putting an offer in on a home. Additionally, obtaining a pre-approval letter from a mortgage lender is critical, but there are other ways to look more attractive to a seller than simply price. Most notably, having an all-cash offer is attractive to sellers who “know the buyer can close” versus a buyer with a mortgage application pending who may not be able to close.
Even though a borrower (buyer) may have a pre-approval letter stating they can afford a home’s price (mortgage), that borrower must still apply for that home. While a person may have a pre-approval amount, they may not get approved for that particular home if the house is not appraised by an independent appraiser for the value the mortgage underwriter needs.
In other words, if the buyer is willing to pay more for a house than the lender feels it is worth, the lender will most likely not give the buyer the loan they seek. Therefore, despite having a pre-approval letter, that buyer may ultimately have to back out of an agreed price with a seller whereas an all-cash buyer would not need to.