A buyer’s market happens when the supply of homes exceeds consumer demand. For those wishing to purchase a home, this is an ideal time in which to do so because prices would be considerably lower for potential buyers. This type of market gives the customer a competitive edge in that they are the ones who control the prices. In negotiations, the customer will be more apt to make the lowest possible bid in an effort to get a good price on a new home.
In a buyer’s market, houses will remain for sale much longer than usual. Those looking to sell their home may wind up waiting for over a year before the first offer is made. Bidders compete to see who can offer the greatest amount of money on a home. Because an owner wants to sell their home, they may be forced to lower prices to avoid the tendency of purchasers to buy property from a competitor. Furthermore, there is considerable pressure on those looking to sell to take steps to ensure that the property they are selling is in mint condition, which could require services from a professional appraiser.
The way that housing markets are created has much to do with economic booms and busts. The following chart illustrates the overall behavior of two common variables, supply and demand, where price, denoted by P, is determined by supply S and demand D. Demand is determined by the amount of customers looking for a certain product, while supply refers to what is available and how much. As in the case of real estate, when there is a larger demand for homes that exceeds the supply, owners must adjust the prices to attract potential buyers. When supply is greater, consumers will examine all that is in the market and either set the price or buy from a competitor.
For example, the housing boom of the early 2000s created what was known as a “housing bubble,” one in which real estate was in such high demand that pricing and conditions hardly mattered. By 2006, prices reached their peak, only to decline later that year and into 2007. By 2012, the market reached a new low, and the buyer’s market started again.
Because of the overall behavior of our market, this boom soon led to a major crash, thus creating conditions ripe for a buyer’s market. There were more homes on the market than there were purchasers, and sellers were soon competing with one another to attract bidders. This was a time of trouble for the seller, as they were often forced to adjust the asking price just to sell their property.
Below are some strategies to assist home sellers in surviving a buyer’s market:
- Offer to cover both closing costs and moving expenses. The important thing to remember is that a majority of consumers looking to purchase a new home may be somewhat limited financially. Sometimes, even paying for moving costs can motivate that buyer into following through on the closing. This is an excellent morale booster for the person buying your home in that it can offset the stress of other costs, such as interests on long-term mortgages and loans.
- Get to know your buyer before you sell. This can be done through your Realtor®, the very person who serves as a liason between you and the purchaser. What would she/he like? Is this the very first home they are buying? If that be the case, then the seller may want to consider including major appliances, such as a refrigerator or a stove, for example. Even some furniture would be recommended. This would not only make the customer feel welcome, but would certainly offset any more costs associated with buying a home.
- Offer to cover costs for repairs. Sellers can do this by getting an estimate on costs to repairs and by deducting those costs from the price of the home. For example, if your home is experiencing problems with plumbing, hiring an inspector and getting an estimate of the costs would help. Once deducted, it can then become the buyer’s responsibility to cover the costs of a contractor.
- Invite your customers to spend the night nearby. During their stay, your customers can spend quality time getting acclimated to their new home while getting to know the neighborhood and its residents. If they still have misgivings about the area, it is suggested that the owner host a block party and invite them to it. This provides a fun, safe environment in which a potential resident can socialize and get to know the very people who might one day become their neighbors. The buyers can ask about the neighborhood, its history, and any and all business developments that are happening within the area.
- Set a price that catches the eye and gets your home noticed. Remember that the main goal in a buyer’s market is to attract the buyer. It is even advised that sellers reduce prices considerably so that someone will actually want to buy their home and not pass it up for the competitor down the street. The sooner the home is sold, the more that the person selling the home can actually save. And that’s not just including the money made from the sale itself, but the money that would be spent on homeowner’s insurance, property maintenance and upkeep, and utilities, not to mention property taxes. With these costly factors in mind, it is actually very worthwhile for the owner to accept less money from the buyer.
- Keep negotiations open. The longer the talks, the greater a seller’s chance of selling their home. The only time to walk away is when the buyer offers a price that is suspiciously low or that is considerably less than the original amount.
Below are some tips for buyers in a buyer’s market:
- Think of an offer that suits your needs. Remember, this is a time when you, the buyer, have an advantage over the seller. Be sure to allot significant time for negotiations. If the owner is asking for more than what you bargained for, you have the power to check out other homes within the area or to look at similar ones.
- Get to know your new neighborhood. What is the history of the area in which you plan to live? Remember, in a buyer’s market you are in control. Don’t settle for just anything.
- Think before you buy. This includes doing some serious homework and investigating online. Checking with a Realtor® is a plus. Know the difference between what constitutes a good deal and what doesn’t.
- Be prepared. This means applying for and making sure that you get preapproved for a mortgage prior to the actual sale of the home. Hire a home inspector and an insurance agent, as they can give you a good estimate on the cost of repairs and an insurance policy on the home.
- Be mindful of eager sellers. When doing so, consider this: How long has the property been on the market? Other factors such as the amount of price reductions and whether or not there are any occupants in it may suggest just how desperate the owner wishes to sell the home.
- Check for any liens on the title of the property. Have an attorney perform a thorough title search to see if there are liens on the property from banks, contractors, or other service providers. Even if the price may be low, you don’t want the hassle of having to cover for any unpaid accounts.
- Set your price and stick with it. Arguing with your fellow bidders becomes a waste of time and money. Remember, if the price is too high, you have plenty of other homes in the market to choose from. So don’t be afraid to walk away!