The dynamics of real estate markets are like a river that’s constantly flowing and changing. That’s why it’s wise to keep abreast with the latest news on a particular housing market when you’re buying or selling a home. 

A seller’s market and a buyer’s market are two common terms that real estate investors and professionals use when referring to markets. Perhaps you have already heard about these terms, but what do they mean? 

Read on below to know the difference between a seller’s market and a buyer’s market, their causes, and what to do in each of these market situations if you’re a homebuyer or seller. 

Definition of a Buyer’s Market

A buyer’s market occurs when the inventory of available houses is higher than the demand. So, this market situation is advantageous to buyers because there’s less competition and the prices tend to be lower. Another sign of a buyer’s market is when more than six months have passed and houses are still sitting on the market.

Causes of a Buyer’s Market

Different causes lead to a buyer’s market. These factors include economic changes, a rise in the number of new construction, and demographic shifts.

• Economic factors. A drop in the employment rate or when a big company moves out of an area can cause more people to sell their homes. Such factors contribute to the increase in the supply of homes available for sale. 

• Rise in the number of new construction. When new houses being constructed in an area are growing, it causes the inventory of available homes to also increase. However, this won’t automatically mean that there will be an increase in the number of people who want to buy them. An excess in housing inventory will result when the demand is lower than the number of homes for sale. 

• Demographic shifts. If young adults prefer renting an apartment to owning a house, this factor causes the demand for the housing inventory to drop. 

How to Sell a Home in a Buyer’s Market

While a buyer’s market is favorable to homebuyers, it can be difficult for sellers because of the high home inventory. Sellers should take note of these tips to overcome the challenges posed by a buyer’s market. 

• Competitive pricing. Sellers should price their homes strategically. For instance, you can lower the listing price to attract more buyers. The goal is to find a buyer right away and avoid the eventuality of letting your property sit on the market for a long time. When a house sits longer on the market, you’ll have to cover expenses such as utilities and insurance. 

• Offer Credit for Repairs. Buyers want to get a good deal on a home purchase. They will likely buy your house if you offer a credit to lower the expenses for repairs. 

• Pay a part of the buyer’s closing costs. It’s common for both sellers and buyers to shoulder the closing costs. If you offer to cover a percentage of the buyer’s closing costs aside from your own, you can attract more interested buyers of your home. 

Definition of a Seller’s Market

When the demand for houses exceeds the inventory of available houses, it’s called a seller’s market. The prices of homes in this type of market are typically higher, which favors home sellers. Moreover, the competition among buyers is tight and typically involves bidding wars. 

Causes of a Seller’s Market

There are different causes of a seller’s market, such as low numbers of new construction, employment growth, and increased population. 

• Low numbers of new construction. There will be a low supply of houses when new construction is meager. New homes being built in an area directly dictates housing inventory. 

• Employment growth. If an area has more jobs and businesses are opening up, more people will flock to that place to seek housing. Employment growth can cause the demand for houses to rise. 

• Increased population. Population growth can contribute to the increase in housing demand. If the supply doesn’t meet this high demand, it can lead to a seller’s market. 

How to Buy a House in a Seller’s Market

It’s pretty tough for buyers to navigate a seller’s market because of the stiff competition. Buyers should take note of these tips to successfully purchase a house in this type of market. 

• Show you’re a qualified buyer. Before starting your house hunting, get a pre-approval letter from the bank. This letter shows the sellers that your lender has reviewed your credit and income, certifying that you’re a qualified buyer. 

• Raise Your Earnest Money Deposit Higher. One indicator that you’re serious about buying a house is making a high earnest money deposit. The seller will likely make a deal with you if you do this. 

Takeaway

Now you know the difference between a seller’s market and a buyer’s market. It’s crucial to have this knowledge if you’re selling or buying a house. Make sure you know how to overcome the challenges posed by these types of real estate markets.