Inside Real Estate – Episode 20
Buyers Market vs. Sellers Market
Recent memory is a great example of a seller’s market. The market has been on a roll for the last five plus years, but there was a time where it was really a buyer’s market. In this episode of Inside Real Estate we are taking a look at the contrast between a Buyers Market vs. Sellers Market
So what is a seller’s market? A seller’s market is characterized by:
- Low inventory
- Strong demand
- Multiple offers
- Selling above asking price
- Short time on market
What does a buyer’s market looks like? A buyer’s market is characterized by:
- Lots of inventory
- Weak demand
- Price reductions
- Selling below asking
- Extended days on market
Oftentimes in a buyer’s market, it really turns into a motivation contest for sellers. The sellers who are most motivated are the ones who will be most aggressive in meeting the buyer’s expectations on price.
The way to really analyze these two different market conditions is their relationship to indicated value. A good visualization of the relationship to indicated value is the graph.
It shows you the premium in a seller’s market, a neutral market, and then the discount in a buyer’s market, all relative to the indicated value.
When it is a seller’s market, it is not uncommon to see homes sell above the indicated value, the data indicated value, or there is a premium above the value. In the seller’s market, when the last property sold at $1,200,000 it is not a surprise to see the next property in that neighborhood sell for $1,250,000. That is very common in a seller’s market. Seller attitudes are often pretty hard. They do not care what the data says. They want what they want, and they want it “as is”. They will not pay for any repairs. All the chips are stacked on the side of the seller.
One of the interesting things about a strong seller’s market is the home may actually not appraise at the sales price and a lot of time buyers do not care. There is such extreme demand and extreme competition that buyers are willing to purchase at a premium.
Relative to the data indicated value, appraised value in a buyer’s market, it is not uncommon to see homes sell below what the data indicates. And it is kind of a flip of the seller’s market because buyers will say often, “I don’t care what the data says. This is what I’m willing to pay. Take it or leave it.” So it is not uncommon to see homes sell below what the most recent sales for that floor plan were.
In a buyer’s market, of course, there are really very few problems with appraisals because the homes are selling less than what the recent comps are. So that is the difference between a buyer’s market and seller’s market. The question is, which one are we in now and we shall see.
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