Buyer's Market vs Seller's Market

Buying a Home, Selling Your Home by Natasha Lingle

Buyers vs. Seller’s Markets- Strategies for Buying & Selling a Home

Buy in the off-season, sell in the Spring or Summer is the mantra, but is it always accurate? When planning to buy and sell a home, it’s important to know about real estate market condition in your area. In this article, I’ll outline the differences between a buyer’s and a seller’s market, and the ways you can use this information to your advantage.

What is a Buyer’s Market vs Seller’s Market?

Here are a short definitions.

A buyer’s market occurs when the supply (available homes for sale) exceeds demand (the number of buyers seeking to purchase homes).
A seller’s market occurs when demand exceeds supply, or there are more buyers seeking to purchase homes than there are available homes on the market.

How to determine if my local area is in Buyer’s or Seller’s Market?

The way to determine a type of housing market is to calculate the absorption rate. To do this, we’ll use a few market stats: 1) a number of active homes listed in your local area, 2) a specific time frame (for most accurate stats we’ll use 180 days), and 3) a number of homes sold within that time frame.

Let’s walk you through an example.

Area:  Vienna, VA. Type of properties: Single Family Homes.

The Numbers

Timeframe: 180 days

Number of homes sold: 300

Number of active homes listed: 101

The Math

Calculating the rate at which homes are selling:

Timeframe/Number of Sold Homes= Rate of Home Sales

180/101= 0.6

The rate of home sales is the amount of time it takes one house to sell. So, in this case, one home is sold every 0.6 days.

Absorption Rate:

Number of active homes listed x Rate of Home Sales= Absorption Rate

101 x 0.6 = 60.6

This means that the absorption rate for Vienna, VA is every 60.6 days, or about 2 months.

In plain English, this means that the current single family homes inventory will be gone in 2 months. A healthy (or balanced) market takes about five to seven months to absorb the current active listings.

As you may have already guessed, the calculations that we did above indicate that Vienna, VA would be in a Seller’s Market

Seller’s Market

A seller’s market happens when there is not enough housing supply to support the demand for houses.

Low supply and high demand mean housing prices skyrocket and bidding wars occur.

Selling in a Seller’s Market

When people see home values on the rise, many start listing their homes for sale. It’s a fantastic time for you to sell your home during a Seller’s Market. Usually the buyers offer above asking price and remove all or most of the contingencies. You as a seller, could secure a sale price that’s higher than your listing price and receive a clean contract without contingencies, such as Home Inspection or Appraisal.

Buying in a Seller’s Market

Buying in a seller’s market is not easy.

You have to stay on top of the housing inventory in case a home you like comes on the market, and you’ve got to be ready to pounce. Here are a couple of strategies to use when buying in a seller’s market.

Get Prequalified

One of the best things you can do when you go to make an offer is have a pre-qualification letter from your lender. A pre-qualification letter adds credibility to your offer and makes it more attractive to a seller because it shows a lower probability of backing out of the sale due to lack of funding.

To get prequalified, talk to your lender. It’s often as simple as a phone call and answering a few questions. Don’t have a lender? Talk to your real estate agent. They’ll have one that they have used in the past with great success.

Stay on Top of the Market

Having your real estate agent on top of things is great, but you’ll want to be on top of the market as well. If you see a house that looks intriguing and is within your budget, have your real estate agent schedule a walk-through.

You’ll have to be quick on your feet with an offer if you really want the house you find, so scheduling a walkthrough of your favorite homes as they pop on the market is a good idea.

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Buyer’s Market

A buyer’s market happens when the absorption rate is more than seven months. That means that the number of homes available for sale greater exceeds the number of buyers looking to buy.

Buying in a Buyer’s Market

This is great news for buyers – more homes to choose from, lower prices, flexible settlement, and you might be able to buy a great home for a lower cost than you would in a seller’s market.

You can take your time and really get to know a property before buying, and can usually get a great deal on real estate.

Real Estate is Local

Buyers and Seller’s markets can be seasonal, so you’ll want to pay attention to your local areas stats. For example, in Northern Virginia, the busiest time of the year is between March and August. This busy season does not always mean it’s a seller’s market, but it does mean if you want to sell your home, that’s the season to do it in.

Quick Recap

How well you buy or sell your home is dependent upon the market you are currently in. Just because the news says the nation is in one market doesn’t mean you are in the same predicament.

You can figure out which kind of market you are in by calculating the absorption rate or talking to your real estate agent.

The strategy you use to buy or sell your house is also dependent on the market you are in and your real estate agent. Choose your real estate agent wisely and stick to these strategies, and you’ll be able to buy or sell your house in any market.

 

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