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Is it a buyer's market or seller's market? How to tell the difference.

Yahoo Personal Finance· Getty Images
8 min read

Economists and real estate agents often describe the national real estate market as either a buyer's market or a seller's market. While economic conditions — especially those related to housing — impact local markets, too, it’s more important for most people to know whether their region or city is in a buyer’s or seller’s market.

Dig deeper: When will the housing market crash again?

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Essentially, a buyer's market is one in which there are more homes for sale than buyers. That means it’s easier for buyers to find the home of their choice, and there’s a greater possibility that buyers can negotiate with sellers during a transaction. In this case, the buyer has a leg up.

In a seller’s market, the opposite is true. There will be more buyers than homes for sale, so sellers have more control over the transaction. Home buyers may have to compete for a property in a bidding war in a seller's market. Buyers will have a lower chance of getting a home they want for a lower price, negotiating for repairs, or receiving closing cost assistance from sellers.

The housing market can be affected by numerous dynamics, such as mortgage rates, new home construction, the job market, demographics that influence the number of new household formations, and whether there’s a recession. To determine whether your area is a buyer’s or seller’s market, ask a local real estate agent or follow the housing market trends in your neighborhood or town.

Learn more: Is it a good time to buy a house?

While national factors that impact the housing market, such as mortgage interest rates, can affect your local market, it’s more important to track numbers in your neighborhood, city, or region to understand whether you’re in a buyer’s or seller's market. Here are some numbers to keep an eye on:

1. Sales prices. In a seller’s market, housing prices tend to trend upward because they’re driven by increased demand. In a buyer’s market, sales prices are stable or even declining.

2. List-price to sales-price ratio. When sellers have the upper hand in the market, they often receive offers for more than their asking price. For example, in a seller’s market, the list-price to sales-price ratio can be 101% or higher, meaning houses sell for more than their listed prices. That ratio is typically well under 100% in a buyer's market since homeowners may need to accept a low offer to sell their home.

3. Days on the market. In a seller’s market, homes typically sell quickly. If homes linger on the market for months, this could mean that buyers have more power in the market.

4. Inventory of homes for sale. The number of homes for sale plays an important role in whether you’re in a seller’s or buyer’s market. Sellers typically have the upper hand if fewer homes are on the market than in previous years. If there are more available homes, this could indicate a shift to a buyer’s market — but it depends on how well the housing supply meets demand.

5. Price cuts. When sellers start to lower their prices from their initial asking price, buyers generally have the upper hand. If this becomes widespread, that indicates a buyer’s market.

6. Construction starts. The supply of homes compared to demand drives a buyer’s or seller's market. If demand can’t rise quickly enough to meet the number of new houses being built, you’re in a buyer's market.

7. Local economic indicators. If your region is experiencing job growth or has a large population of younger adults beginning to form their own households, that could mean you’re in a seller’s market due to the high demand for houses. On the other hand, if job growth has slowed, that could be better news for buyers looking for a home.

Read more: Is it a good time to sell a house?

Just because you’re in a seller's market doesn’t mean you can’t — or shouldn’t — buy a house, but you need to prepare for local market conditions. Here are some things you’ll need to stay competitive in a seller’s market:

  • A real estate agent who knows your market well.

  • A preapproval from a mortgage lender, which shows you’re financially prepared and serious about buying the house.

  • A home inspector who can do a “pre-offer” inspection on short notice so you can get a sense of the home's condition. If you choose to make an offer on a house, you can waive your right to a home inspection if the property has already been vetted, which will make your offer more competitive.

  • A strategy for a bidding war with a firm upper limit so you don’t overspend, and a plan for a potential automatic escalation of your offer.

  • Cash in the bank so you can confidently provide an earnest money deposit as part of your offer.

  • Flexibility to allow the sellers to choose their preferred closing date.

While it’s good to have plenty of potential buyers for your home in a seller's market, you still need to prepare for what could be a fast-moving transaction. Here’s what you’ll need:

  • A home in top condition. You’re likely to sell more quickly and for more money if your home is clean and in good repair.

  • A fair price. Even in a seller’s market, most buyers are wary of overpaying for a home, so you’ll likely get more interest if your price is close to similar homes.

  • A plan for your next home, including your preferred closing date.

  • A real estate agent who can help you analyze offers. The highest offer may not be the best offer if there’s a chance the buyer doesn’t have financing in place or is requesting repairs.

  • An understanding of contingencies such as a home inspection, an appraisal, and financing, all of which could impact the speed and completion of your sale.

Learn more: How to sell a house fast

Buying a home in a buyer's market should be much easier than in a seller's market, but you still need to prepare with the following:

  • A mortgage preapproval letter from a lender so you have an accurate idea of your budget.

  • An understanding of local market values so you don’t overspend or offer so little that you will be rejected.

  • A home inspector who can help you decide what to ask the sellers to fix. (Your real estate agent may have a list of inspectors they’ve worked with before.)

  • A timeline so you can monitor how long homes stay on the market. The longer a house sits unsold, the more negotiating power you have.

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Some homeowners may opt to wait and list their homes when the market shifts. But if you want or need to sell your home in a buyer’s market, you can take these steps:

  • Do repairs and inexpensive upgrades to improve your home’s condition.

  • Visit other houses on the market to gather ideas to make your home more enticing.

  • Consult a real estate agent to help you price your home accurately.

  • Talk to your listing agent about creative marketing.

  • Consider staging your home to appeal to buyers.

  • Be ready to negotiate with buyers on repairs and other contingencies.

  • Offer seller concessions, such as helping pay buyers' closing costs.

Learn more: How to sell your house without a Realtor

Multiple indicators, such as whether home prices are going up or down, the number of homes listed for sale, and the time it takes for a home to sell, can help determine whether you’re in a buyer’s or seller's market.

Many buyers purchase homes during a seller's market because they worry that prices will continue increasing or because the timing is right for them to buy. It’s not a bad decision as long as you go into it carefully, get professional advice, buy something you can afford, and don’t overspend for your market and budget.

Selling in a buyer’s real estate market isn't necessarily bad. You may want to sell your home for many reasons, such as the need to relocate, a change in your family size, or even because you want to take advantage of a buyer’s market to purchase a new property. If you want to sell your house in a buyer’s market, consider your list price carefully, compare the numbers for a good estimate of what the sale proceeds will be, and be ready for a possibly slower sale.

This article was edited by Laura Grace Tarpley