Chapter 2 - Buyer’s & Seller’s Markets

You have heard the term “Buyer’s Market” which is what we are in now. You have probably also heard the term “Seller’s Market” Both have to do with basic economics and the law of supply and demand. This is the difference and how you should behave in both:

Buyer’s Market

In a buyer’s market, there are more homes on he market than there are buyers. This means that the supply far outweighs the demand and the prices of the products are lower. Economics 101 - when supply exceeds demand, prices drop. So in a buyer’s market, which is what we have now, there are many more homes on the market for sale than there are buyers.

When you have a buyer’s market, sellers get desperate to sell their homes. They are competing with a lot of other sellers who also have the same product to sell. It is as if you are at a flea market buying a cell phone. Everyone there has cell phones for sale and there are only a few buyers. But the people who have the cell phones are desperate to sell them. So what to do they do? The undercut the other guy. They begin lowering the price of their cell phones to as low as possible where they can still make a profit.

This means that the buyers can really get some good deals. In a real estate buyer’s market, it gets even better. Because no one has to sell cell phones, but people have to sell their homes. Those who are selling in a buyer’s market either have no choice or are desperate and panicking. This means bargains galore for buyers.

In order to take advantage of a buyer’s market, you can offer a lot less than the listing price of the home. If you are working with a real estate agent, do not listen to the real estate agent and think that you have to bid high or the people will be “insulted.” If they get that insulted, find another house. The real estate agent gets a commission off of the sale price of the home. The more you bid, the more money they can make.

If the real estate agent says something you like “I won’t even make an offer like that, it’s insulting.” Thank them for their time and then tell them that you are going to find another agent. Chances are very good that they will make the offer. There are thousands of real estate agents that would jump at the chance to make any offer during a buyer’s market.

So, during a buyer’s market, you are better off to buy property at rock bottom prices and hang on to any property that you have. If you want to take advantage of new construction and move to a bigger house because of the buyer’s market, rent your existing house out to other people instead of trying to sell it during a buyer’s market.

Seller’s Market

A seller’s market is just the opposite of a buyer’s market. This usually happens just as the economy gets a boost and after a recession in the real estate market, which is what we are in now. People have not been selling and buying in a long time. Then something happens, like the interest rates get lower or there is renewed faith in the economy, and a boom hits the housing market. Pretty soon, there are more buyers than there are houses for sale.

The last true seller’s market in the United States was in the 1980s when interest rates plummeted down to 12 percent from 18 percent. People began buying houses like mad. Lenders were very busy and you would have to make repeated calls to get them on the phone. Title companies were overburdened with an onslaught of not only people purchasing homes, but actually for the first time, refinancing their mortgages. The 1980s sprouted a whole bunch of new businesses and made way for a lot of new title companies and mortgage lenders.

To give you an idea of what the seller’s market was like in the mid 1980s, a home would go up on the market and would be on there for only a few days before they would have a contract. People would have “open houses” on their homes and get several different offers and have the opportunity of picking the best one. There were cases where people actually bid higher than the asking price for the home in order to secure the home.

The seller’s market is obviously the best time to sell. Although we have not experienced a true seller’s market throughout the nation for some time, we often see a seller’s market in areas where it very desirable to live. There are still areas like this in the United States today, where they have a seller’s market. These are usually either upscale neighborhoods and homes or moderately priced homes in really nice areas.

You can tell when you’re in a seller’s market in your area by the amount of homes on the market and the length of time they remain on the market. If you have a bunch of “for sale” signs sitting in yards all over the place and no one buying them, and the signs sit for months, chances are that you are in a buyer’s market. If you see a quick turnaround in signs and sales, you can tell you have a good chance to sell. Coveted areas always have it much better than the rest of the nation.

If you want to buy during a seller’s market, you are better off to buy new construction. New construction will usually appreciate in value quite a bit from the time construction commences to the time that it is finished. This is what people were doing when they were “flipping” homes. Investors were buying new construction in upscale neighborhoods, waiting a few months for the home to be completed and then selling it to a buyer at a profit.

Buying new construction is always better in a seller’s market.

Today, we are in a buyer’s market. Again, if you have been thinking about buying a house, there has never been a better time to do so than right now.