By Chip Collins
In real estate, market conditions can be classified as a buyer’s market, a seller’s market, or a balanced market, each defined by supply and demand. These distinctions impact not only the mood of the market but also the strategies employed by buyers and sellers. Understanding these differences is crucial for making informed decisions, whether you are purchasing a home, selling one, or simply observing market trends as a property owner.
A BUYER’S MARKET occurs when there is an excess of inventory relative to the number of active buyers. Typically, this scenario arises when the monthly housing supply exceeds six months. In such a market, sellers face more competition, as buyers have a plethora of options. This gives buyers significant leverage in negotiations, allowing them to make lower offers, ask for more concessions, and request property repairs and terms favorable to them before finalizing a deal.
Unlike what we saw in the COVID market, a softer market offers buyers a range of choices and enables more time for decision-making. It’s common to see price reductions and sellers willing to entertain offers below asking price, especially if their property has been on the market for an extended period. Buyers might even request home-to-sell contingencies, which are usually not palatable in a more competitive market.
From the seller’s perspective, however, a buyer’s market can be more challenging. Sellers need to be more strategic with their pricing and property presentation. This means ensuring the property is in prime condition, addressing deferred maintenance, and potentially making aesthetic updates prior to going on the market to stand out against the competition. Sellers may also have to be flexible with their asking price and terms of sale.
In contrast, a SELLER’S MARKET occurs when the housing supply is less than three months, meaning there are fewer homes available than the number of buyers actively searching. In a seller’s market, homes tend to sell quickly, often at or above asking price. Buyers, anxious not to miss out, may enter into bidding wars, further driving up the final sales price.
Buyers in a seller’s market have less leverage. They may need to move swiftly to place an offer, often with fewer contingencies, to be competitive. In this scenario, buyers are less likely to request extensive repairs or adjustments and are often willing to pay over the asking price to secure the property.
Sellers in this type of market are in an advantageous position. They can be more selective with offers and may not need to make as many concessions. Additionally, the pressure to invest in extensive home improvements is reduced because buyers are eager to secure properties regardless. However, sellers should still ensure their pricing is competitive and fair/justified, as overpriced homes, even in a seller’s market, can linger unsold.
A BALANCED MARKET occurs when the monthly housing supply is between three and six months, meaning the number of homes available matches the demand from buyers. In this type of market, neither buyers nor sellers hold a clear advantage. Homes sell at a steady pace, and prices tend to remain stable, with minor fluctuations based on location and property condition.
For buyers, a balanced market offers the opportunity to negotiate but not with the same level of aggression as in a buyer’s market. Buyers can expect fair pricing and reasonable terms, though they may still face competition for well-priced, attractive properties. It is also easier to include contingencies like inspections and appraisals in the offer, as sellers are more likely to agree in this neutral environment.
Sellers in a balanced market need to be aware of pricing trends and ensure their home is presented well. While they won’t face the aggressive competition of a buyer’s market, they also won’t have the luxury of a quick sale unless their property is particularly desirable. Proper pricing, home presentation, and flexibility in negotiations are key to securing a timely and profitable sale.
Understanding the type of market you are entering is crucial for success in real estate transactions. By closely monitoring market indicators such as the monthly housing supply, both buyers and sellers can make strategic decisions that align with their goals. Whether navigating a buyer’s market, a seller’s market, or a balanced market, being informed about the current market conditions is always the key to maximizing success.