Imagine one day you wake up and turn on your television or check social media to watch the news. You see the headline “Buyers are dominating the current property market today and this buyer’s market is here to stay”. Alternatively, the news headline could say “It is a good day if you are a real estate seller as the market transforms into a seller’s market”. At that moment, you might wonder what does a buyer’s or seller’s market in real estate actually means? You might also wonder whether you are missing the investment opportunity of a lifetime! If only you knew beforehand what these terms mean and prepared accordingly!
Luckily, you’ve made the wise decision to come to the Bproperty blog and read this article. So today we’ll be taking a look at what buyer’s or seller’s market in real estate actually means.
What is a Buyer’s market in Real Estate?
To put it simply, a buyer’s market in real estate is when the buyer has the advantage over the property seller. This is when the buyer has leverage against the seller and can dictate the terms of the property transaction. Meaning, the seller will be “going after” the buyer and offering them discounts, better pricing or additional items in order to “sweeten the deal”.
So, let’s take a brief look at what a buyer’s market in real estate actually looks like:
- Increased product in the market: Basic economics says, when supply is low and demand is high, prices will go up. And when the supply is high and demand is low, prices will go down. It’s kind of the same principle here. A buyer’s market in real estate will have a great supply of properties for sale compared to the demand – an oversupply does not need to exist. An abundance of real estate in the market is enough to tip the balance in favor of the buyer.
- Low demand: Be it for a decreasing GDP, recession or a change in taste, a buyer’s market in real estate will tend to have lower than usual property demand. Fewer people will actively think about buying property and even fewer will actually commit to such investment. Meaning, there will be fewer people competing for properties. You’ll hear less and less about people buying homes.
- Longer shelf time: As a result of low demand and increased supply, properties will be on the market for a longer period of time. Sellers will have a tough time finding the right buyer who will agree to their prices – and if fortune abandons the seller completely, agree to purchase the property at all.
- Lower prices: As a culmination of all the previous factors, it may very well be possible that sellers will drop the prices in the hopes of finding a buyer, any buyer, for their property. You’ll see a lot of developers forced to sell their properties at lower prices to prevent incurring a loss – something people of Bangladesh witnessed between 2012 and 2018. Apartment prices in Dhaka fell by as much as 30% during this time.
What is a Seller’s market in Real Estate?
In contrast to the “buyer’s market”, a seller’s market in real estate is when the seller is at the top. The greater urgency in buyers leads to more property transactions and supply shortages, which in turn results in such market conditions. During such conditions, a property seller can decide to set a price that is way above the going rate and still finds multiple potential buyers who actively show interest.
A seller’s market can usually be identified by a few things:
- An excess in demand: The first tell-tale sign of a seller’s market in real estate is the presence of significant demand in comparison to the supply. Furthermore, that demand will probably be in the midst of a growth spurt. Even four to five people may go after one single property in the market.
- Shortage of supply: There are only so many properties that can be built within a certain span of time. If the demand exceeds the supply and there are more contenders to deal with for individual properties, that’s when shortage happens. In a seller’s market, the supply of such properties, be it for an entire region or a specific locale, will be limited – thus giving the seller the power to decide when and what price they want to sell them.
- Higher prices: As all the selling power is held by the seller in a market where buyers are practically involved in bidding wars for properties, the seller has the flexibility to set a price to their liking. This is what the Bangladeshi people have been seeing for a while now – where property prices have been jumping from quarter to quarter.
- Quicker sale: Despite high prices, which may be twice as more as the expected average rate, properties don’t remain on shelves for too long. As soon as some property becomes available for sale, buyers scoop it up in the hopes of greater profit down the line.
There you have it, the signs and characteristics of a buyer’s or seller’s market in real estate. While the transition from one market condition to another isn’t rapid by any means but can come as a surprise if someone isn’t with the key signs. So now that you know what these two vital terms mean and what they look like, if you come across a news headline one morning stating it’s either the buyer’s or the seller’s market right now, you’ll probably be smiling with a coffee in your hand.
