The question on everyone’s mind when buying or selling: does the current market favor buyers or sellers? By establishing a deep understanding for the specific market and inventory levels in your neighborhood, we can use the basic principle of supply and demand to answer the popular question.
A Seller’s Market, Defined
When demand exceeds supply, a seller’s market develops. In such a market, there are ample interested buyers, however, inventory levels are low meaning there aren’t many available properties to satisfy those buyers. In this instance, sellers benefit by having “the upper hand” and such market conditions can sometimes cause property prices to reach all-time highs.
Typically, in a seller’s market, homes tend to sell more quickly. Buyers are forced to compete with one another for homes and, in turn, frequently find themselves in bidding wars and spend more than they otherwise would. This allows sellers to increase asking prices, while also reducing buyers’ negotiating power. The general mindset of a seller here is, “If buyer number one won’t pay the price or agree to my terms, surely buyer number two will.”
Tips for Buyers
Move swiftly. Time is of the essence, so buyers should act quickly if they find their ideal home in a seller’s market to reduce the risk of another buyer putting it under contract.
Get preapproved. Getting preapproved for a loan is step number one, to ensure funding is ready in the event you find a home. Or, if you’re able to, make an all-cash offer. Cash buyers are preferred because there is no risk of the transaction falling through due to financing complications.
Accept the disadvantage. As the sellers will have the upper hand, it’s not advisable to enforce contingencies, repairs or precise closing dates – simply because there will likely be another buyer in line without those specific requirements who are ready to grant the seller an easy sale. Carefully consider any clauses you’d like added to the contract and only add those absolutely necessary, as they may risk you losing the property.
Remain patient. Because of the heightened level of competition, it’s important to reel yourself back in if you find yourself losing out on multiple homes or in bidding wars. Don’t trap yourself into paying more money than what the home is worth or than you are comfortable spending – you’ll surely regret doing either.
Don't give in. At the end of the day, purchasing a home is one of the biggest financial commitments a buyer may take on in their lifetime. Don't rush into purchasing a home simply because it is on the market (especially if you’ve lost out on others). If necessary and possible, pause your property search and pick it back up after the market calms down.
Tips for Sellers
Prepare your home for market, as usual. Prior to marketing the property, ensure the home is in its best shape to attract the most potential buyers, as you would in any market. This means cleaning and organizing – and possibly also staging.
Set a fair price. Despite properties often selling for more in a seller’s market, setting a fair asking price will still benefit you. By doing so, you're more likely to draw in the maximal number of prospective buyers. To spark a bidding war, some sellers might even opt to list their homes slightly under the assessed value
Consider each offer carefully. In a seller’s market, it’s easy to focus on selecting the highest offer while neglecting to assess each buyer’s financial standing. As with any real estate transaction, it’s not guaranteed that a buyer’s financing will go through, and keep in mind that a lender won’t permit a buyer to borrow more than the home’s assessed value. The last thing you want is to have to return to market after a failed contract.
Confirm buyers are preapproved. It’s crucial to ensure that any buyer using financing has been preapproved, as this makes it much more probable that the buyer will be able to acquire the necessary loan. One caveat, however, is that a preapproval is simply a projection of the buyer’s financial situation and not a guarantee.
Expect the unexpected. Offers including contingencies relating to a mortgage, home sale, appraisal or inspection provide buyers the option to cancel the agreement if specific requirements aren't met.
In sum, it’s important to have an understanding for the market in your area at the time you are ready to buy or sell. Having a trusted real estate advisor on your side is the best way to learn about and navigate the market, ensuring you an advantage over the competition. For guidance with buying or selling in any market, connect with me via email [email protected] or on social media.