So this seems like an easy question right? Yet over and over again I hear opposing opinions. Obviously, everyone is up to speed on what kind of market we’re in – everyone’s buying and properties sell fast!!
BUT do you know the pros and cons of being a buyer in today’s market? Should you be buying when everyone else is buying? What about the pros and cons for the sellers in today’s market? Do you truly know if we are in a buyer’s market (market favoring buyers) or a seller’s market (market favoring sellers)? Well here is your personal real estate guide to fill you in!
A buyers market is a market that favors and benefits a buyer. This happens when the supply (homes for sale) exceeds the demand (buyers).
Common misconception: A buyers market is when there are a lot of buyers and interest rates are low. THIS IS NOT CORRECT!!!
Pro’s of Buyers Market:
- Lower sale prices because there is big competition amongst home sellers.
- Seller may pay closing costs to get the deal done.
- Offers with a lot of contingencies (another home must sell before closing, the seller must fix all issues in home inspection, etc) are more likely to be accepted.
- Buyers control the transaction and are benefiting when buying a home.
- THIS IS IMPORTANT: You have more equity in your home. Why? Because if sale prices are lower, the market is “down” and home values are more likely to increase in a market cycle. (For more about market cycles see my post “Future of Real Estate & Economic Markets”)
Con’s of Buyers Market:
- Properties will have to be in mint condition for a good chance of selling.
- Financially distressed properties and foreclosed properties are more common because they can’t sell quick enough to stop it.
- Higher interest rates. Now some people may see this and say well how can it be a buyers market (a market favoring the buyer) if interest rates are high? Well, even though interest rates are high, the property value is low so yes you will be paying more interest but wayyyy less principle and here’s the kicker – you can always refinance when interest rates go down again. This is a good thing people.
A seller’s market is a market that favors and benefits the seller. This happens when the demand (buyers) exceeds the supply (homes for sale.)
Common misconception: A seller’s market is when there are a lot of sellers and interest rates are high. THIS IS ALSO NOT CORRECT!!!
Pro’s of Sellers Market:
- Low-interest rates which means more buyers which means it will be way easier to sell your house.
- Low-interest rates also mean it would be a good time to refinance your home.
- Sellers commonly sell their home for way above market value.
- Sellers sell quickly with fewer contingencies (some people even waive their inspection contingency!)
- Some buyers may even pay for sellers closing costs.
Con’s of Sellers Market:
- More buyers competing for a small inventory of homes.
- Buyers pay more for homes than they are worth meaning you have less equity in your home (putting yourself at risk for an upside-down mortgage when the market drops.)
- Buyers put themselves at risk for foreclosure or short sale if they have to sell in a buyers market.
- Less representation if agents have a lot of clients at one time.
- Buyers compete in bidding wars when they want the home.
In conclusion, I will fill you on what market we are currently experiencing and my advice to all us young-ins: We are experiencing a seller’s market! Do not feel like you have to or should buy a house now because everyone else is. Wait out the cycle and buy a house when it benefits you, during a buyers market. My prediction is that we will see a shift in 2-3 years. Wait it out, paying rent is worth it until then, I promise!
Please reach out to me with any questions you may have about when to buy, when to sell, understanding the markets & how and when they shift and any other real estate question or concern you may have!
Hope this was helpful!!
“The big money is not in the buying and in the selling … but in the waiting.”
– Charlie Munger