One of the most exciting things about real estate is that the market is never static. Buyer’s markets vs seller’s market…we’re always moving between these opposing market conditions. You can think of the real estate market like a pendulum. When market conditions lean too far in one direction, the market will correct itself, bringing the pendulum back in the other direction. And knowing which direction the pendulum is currently swinging can help you make informed real estate investment decisions.
Before we address the difference between seller’s markets and buyer’s markets (and your strategies for handling each condition), it’s important to note that real estate markets are highly localized. It’s entirely possible to have a buyer’s market in one city when the majority of the country is in a seller’s market and vice versa. So when you’re analyzing market conditions, focus on your local market rather than the national housing market.
With that caveat addressed, let’s explore buyer’s markets vs seller’s markets:
- How can you tell which market type you’re operating in?
- How can you capitalize on a buyer’s market, whether you’re a buyer or a seller?
- And how can you capitalize on a seller’s market, whether buying or selling?
When Is It a Buyer’s Market?
In general economic terms, a buyer’s market occurs when there is more supply than demand. In real estate terms, this happens when there are lots of properties on the market, and there aren’t enough buyers to buy all the available home listings.
The housing market collapse of 2008 is an extreme example of a buyer’s market. The market was flooded with homes because of rampant construction in prior years and a rush of foreclosures resulting from risky subprime lending practices (this is an over-simplification of an extremely complex worldwide financial collapse, but we don’t want to get sidetracked from our primary purpose of explaining buyer’s markets vs. seller’s markets). There were millions of sellers, but because of the economic uncertainty, there were very few buyers. This imbalance led to a dramatic decrease in property values.
Here are some tell-tale signs of a buyer’s market:
- Homes sitting on the market for months
- An increase in listings expiring before they sell
- Homes selling for less than the list price
- Falling housing prices
What To Do in a Buyer’s Market
In a buyer’s market, buyers have the negotiating power, and sellers are at a disadvantage. But in many cases, property owners operate on both sides of the transaction; they sell their current home and buy their next home simultaneously. So any disadvantage they see when selling a home, they make up for when they buy a home.
Here’s how to make the most of a buyer’s market, whether you’re on the buy-side or sell-side.
Buyer’s Market Tips for Buyers
- Offer less than the asking price. Negotiating a lower price is key. Failing to negotiate is one of the biggest mistakes to avoid when investing in real estate.
- Ask for concessions. Sellers might be willing to pay some of your closing costs to seal the deal.
- Ask for repairs or a price reduction based on any issues in the home inspection. The seller won’t want to risk having the deal fall through at starting back at square one, so they will likely work with you on any problems with the condition of the property.
- If you’re a real estate investor, buyer’s markets are an excellent opportunity to build a real estate portfolio of buy-and-hold income properties.
Buyer’s Market Tips for Sellers
- Get a pre-inspection before you put your home on the market. This will alert you to any potential issues with the condition of the home so you can address them before showing your house to potential buyers.
- Make sure your home shows its best. Repaint, stage, and insist on professional listings photos to help your home stand out.
- Offer concessions to incentivize buyers.
- Consider offering to carry the note on the loan if you’re in a position to. This means you would act as the lender and collect monthly mortgage payments from the buyer. This can help you attract buyers who don’t qualify for traditional financing, and note investing is one of the best ways to invest in real estate without buying property.
When Is It a Seller’s Market?
A seller’s market is the exact opposite of a buyer’s market. In a seller’s market, you have more demand than supply. So you have lots of buyers competing for a comparatively small number of properties.
The real estate market growth of the early 2020s is an extreme example of a seller’s market. The inventory of homes was low following a decade of below-average home construction rates and high construction costs, combined with homeowners choosing to “age in place” (rather than downsize to senior communities as previous generations did). And buyers, incentivized by the COVID-era drop in interest rates, were scrambling to buy homes before interest rates and prices increased. This led to dramatic increases in home values.
Here are some tell-tale signs of a seller’s market:
- Homes selling in a matter of weeks, or even days
- Multiple offers and bidding wars on many home listings
- Homes selling for more than the list price
- Rising housing prices
What To Do in a Seller’s Market
In a seller’s market sellers have the leverage, so buyers have to work harder and smarter to get their offers accepted.
Here are tips for buyers and sellers in a seller’s market.
Seller’s Market Tips for Buyers
- Get pre-qualified with a lender before house hunting. Being pre-qualified gives the seller some assurance that you’ll be able to secure the funding to buy the home.
- Bring your “highest and best” offer. If you’re serious about getting the home, you might need to offer more than the list price. And you might need to offer favorable terms to the seller, like a quick close, waived contingencies, or a rent-back period where the seller can rent the home from you after closing until they find a new home.
- Consider adding an escalation clause to your offer. This clause automatically increases your offer price to match any competing offers up to a pre-determined maximum amount.
- Act quickly. Be ready to make an offer as soon as you find a home that works for you.
- Look for off-market deals. If you have industry connections, you can often find properties that aren’t listed on the open market, which means you’ll have little-to-no competition. Your real estate agent can also leverage their connections to find off-market deals for you.
- If you’re an investor, invest in real estate syndication projects. A seller’s market can create substantial barriers to purchasing a property, but real estate syndication deals are secured by experienced industry insiders, giving you access to expertly analyzed deals with low investment amounts.
Seller’s Market Tips for Sellers
- Price your home appropriately. Homes priced too high might not be taken seriously by buyers, while homes priced too low can leave money on the table.
- Ask for terms that suit you. If you need time to find your next home, ask your buyers to rent the house back to you for a few months after closing.
- Understand how to evaluate competing offers. It’s tempting to simply choose the offer with the highest purchase price. But if that offer comes from a buyer who doesn’t qualify for a mortgage, it could be a waste of time. Ask that your prospective buyers get pre-qualified before making an offer.
Navigating Buyer’s Markets and Seller’s Markets with Gatsby Investment
Being a buyer in a buyer’s market is ideal. As is being a seller in a seller’s market. But being a buyer in a seller’s market or a seller in a buyer’s market quickly makes it more difficult to optimize your real estate investment(s). And this is when it pays to have a team of real estate experts on your side.
Gatsby Investment is a real estate syndication company. We make unique real estate investments in the enviable Los Angeles market available to accredited investors all over the world. Our experienced analysts have the industry connections to secure off-market deals for our investors, negotiating favorable terms on new acquisitions, even in a seller’s market. Our architects, designers, and builders have the industry knowledge to create optimal living spaces that command high rental rates and sale prices. And with our online platform, you can confidently invest in real estateunder any market condition.
At Gatsby, we know how to navigate buyer’s markets and seller’s markets. And we’re excited to make real estate investing as convenient and fun as possible for you no matter which way the pendulum is swinging. Sign up with Gatsby today!