Seller’s Market Vs. Buyer’s Market – What’s the difference?

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Understanding the difference between a buyer’s market and a seller’s market is critical to navigating your local real estate market in an effective and efficient way. You need to know where you stand, both as a buyer and as a seller. Not only should you know whether you’re in a buyer’s market or a seller’s market, you should have an idea as to what degree the market leans one way or the other. You want to know the lay of the land before you decide to work in it.

What is a Buyer’s Market?

In a buyer’s market, the buyer has more of an advantage than the seller during a transaction. Let’s take it down to a good old-fashioned elementary level. If you, the buyer, were looking to buy apples, and there were lots of apple merchants with lots of apples to sell, then you’d be in a buyer’s market, because you have more choice and flexibility with who you want to buy from and there’s no shortage of apples to sell.   The competition from the apple sellers would drive prices down and give you leverage.

Generally, in a buyer’s market, there’s more supply than there is demand. It gets a little more complicated in the real world. Let’s say that in one area there are a ton of condos for sale, but they are all owned by only a few sellers. Even though there is a large supply of condos, it would be a seller’s market, because the few sellers would have total control of the supply (an example of this is oil sales and the meat industry).

To have a true buyer’s market, you need to have a large supply of houses as well as a large supply of sellers to choose from.

When it comes to real estate, it’s more helpful to think of supply in terms of supply sources. Right now in the U.S. and Canada, the supply of homes is as low as can be, and demand is sky-high. You’d be hard-pressed to find any urban or suburban market that isn’t dominated by sellers. Since low supply is almost a given, it would be more useful to base your market analysis on the supply of sellers, not the supply of homes. Are you dealing in an area with many individual homeowners, or are you dealing with a few people or companies who own most of the available real estate?

This analysis is useful because it will tell you just how much of a seller’s market you’re in. If you’re a buyer, look for markets composed of sellers who are single-family homeowners. If you’re going up against developers/condo owners who own sizable fractions of the property available in the area you’re interested in, then you’re in a very weak position as a buyer.

You might hear real estate agents in Canada use a term like absorption rate.  This is just the rate of homes being sold vs the available inventory.   According to agents, if the absorption rate is less than 6 months it’s a seller’s market.  That means if no homes were listed, then the available homes for sale would run out in 6 months or less.   To put that in perspective, hot real estate markets like Calgary have less than 30 days of available homes for sale.

What is a Seller’s Market?

Take everything you know about buyer’s markets and just flip it around.

Suddenly, it’s the sellers who have the advantage. To return to our first grade analogy, now there aren’t that many apples left to sell. It’s getting late in the season, and demand for apples is sky-high because everyone wants to make cider, but only you and a few other sellers have the apples to sell. You, the seller, have the advantage here, because you have tons of buyers who really want those apples. You and the other sellers are like a bottleneck between the consumers and the product.

That’s a seller’s market.

But there’s a problem here if there are too many sellers. A low supply of houses won’t mean much to you as a seller if there’s also a high supply of sellers that you have to compete with. In fact, the more sellers there are, the more advantage the buyers have, despite the fact that supply is low.

That can be a saving grace for buyers in markets like Toronto real estate, which, though its home supply is very, very low, has a high supply of buyers and sellers. Basically, if you’re a seller, you want to be in a situation where the home supply is already low, and you’re one of the few people in the area selling your home. That kind of market environment will give you maximum advantage for any deal.

Of course, it’s never that simple. Maybe demand isn’t that high for your area, especially when prospective buyers see that you have such a big advantage over them. In that case, you might want to update your property and make it more attractive, making it stand out from the rest of the sellers.

What we want to really hammer in here is that you’re never going to find yourself in a pure seller’s market or a pure buyer’s market. It’s a spectrum, with many factors that push the market one way or another depending on the area you’re in and the ever-changing supplies of all the people and products involved. It’s not enough to just focus on the supply of houses, you need to worry about the people involved too. If you can keep the supply of buyers and sellers in mind, you’ll be able to read the market clearer than most.