Understanding Buyer's and Seller's Markets in Real Estate
Market knowledge is crucial for savvy real estate decisions in any state. This includes understanding home types, comparable prices, and, most importantly, whether you're in a buyer's or seller's market.
Simplified
- Buyer's Market: More homes for sale than buyers (supply > demand)
- Seller's Market: More buyers searching than homes available (demand > supply)
Supply: All available homes (single-family, condos, townhouses)
Demand: People actively searching for homes
Buyer's Market
- Choice: Buyers have many options and can be picky.
- Price: Potential for lower purchase prices.
- Competition: Sellers compete to attract buyers.
- Time: Homes may sit on the market longer.
Seller's Market
- Competition: Fierce competition among buyers for a limited number of homes.
- Price: Potential for higher purchase prices.
- Contingencies: Buyers may be less likely to add contingencies to their offers.
- Time: Homes sell quickly, often receiving multiple offers and potentially leading to bidding wars.
Identifying the Market
Here are some ways to identify the current market type:
- Inventory: Look at the number of homes for sale in your desired area. A higher-than-usual number suggests a buyer's market.
- Days on Market: If many homes have been listed for over a month, it's another sign of a buyer's market.
- Sales-to-Inventory Ratio: A ratio above 7 indicates a buyer's market, while below 5 suggests a seller's market. Calculate by dividing the number of homes on the market by the number sold in the previous month.
- Sold Prices: Homes selling above asking price point towards a seller's market, while frequent price reductions suggest a buyer's market.
- Price Trends: Rising median sale prices over time indicate a seller's market due to increasing buyer demand. Falling prices suggest a buyer's market with more choices and negotiating power.
Consult a Realtor
Working with a local area Realtor/real estate agent provides valuable insights into the market dynamics of the area and surrounding towns. This empowers you to make informed decisions as a buyer or seller.
Dylan has spent the most of his professional career in retail banking and financial services. What began with credit counseling and collections eventually transitioned into sales, operations, and management for several of the top retail banks in the United States. Dylan founded HMG to bring his clients a better experience overall and the ability to offer his customers greater mortgage options and pricing.
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