Is it a buyer’s or seller’s market?

In real estate, the pendulum of power can swing dramatically between buyers and sellers. Where that pendulum falls can have huge implications for listing prices, offers, and negotiations. But gauging who has the advantage in the push and pull of market factors can be difficult for novice and seasoned homebuyers and sellers alike.

In a buyer’s market, housing supply exceeds demand, giving buyers leverage over sellers. In a seller’s market, demand exceeds housing supply, giving sellers the upper hand.

Understanding if it’s a buyer’s or a seller’s market is crucial to surviving in the real estate world. Knowing how to leverage that power — regardless of where the pendulum lands — can make a difference in a competitive market.

What is a buyer’s market?

When housing supply exceeds demand, power shifts to buyers in a buyer’s market. Under these conditions, prospective buyers have leverage over sellers because there are more houses for sale than buyers for them. To compete, sellers may have to lower prices, make more seller concessions, or keep their homes on the market for longer than in a neutral or seller’s market.

Advice for buyers

Buyers have the upper hand in this market. If you’re a house hunter thinking about buying a home, now is an ideal time. Here are some tips for getting ahead:

• Look at all the inventory: In a buyer’s market, a house hunter’s greatest asset is their power of choice. Take advantage of the excess inventory and look at as many homes as possible — you never know what’s out there. Plus, this experience can help you negotiate a lower purchase price.
• Analyze comps: Don’t let a listing price dictate your offer price. Use comparable sales in the area to help you craft an offer price.
• Leverage days on the market: If a listing has been on the market for a while, sellers may be motivated to cut a deal with buyers. Buyers can use this information to craft an offer letter with the most favorable terms.
• Wait for the best deal: With so much choice, buyers don’t have to worry about losing out. Don’t be afraid to walk away from a house if the purchase terms aren’t right for you — there are plenty more out there.

Advice for sellers

While buyers have the advantage, sellers can make the most of a buyer’s market by optimizing their home for purchase. Here are some tips to entice buyers:

• Make small renovations and repairs: More than 80% of people prefer a move-in ready house to a fixer-upper, according to a survey by Coldwell Banker. Don’t deter potential buyers by leaving your home out of date or in disrepair — completing these projects before listing your home could be the competitive edge you need to sell.
• Don’t skip the prep: Decluttering and depersonalizing are important steps in preparing your home for sale. They let potential buyers envision themselves in the home and see it becoming theirs. While packing up personal items and knickknacks can feel like one more thing to add to your to-do list, it can make a big difference when it comes time to show your house.
• Invest in marketing: You can have the perfect house, but it won’t matter if buyers never see the listing. Partner with a real estate agent who has a solid marketing background to ensure that your house is seen by the most potential buyers.
• Price to sell: Getting top dollar for your home means pricing competitively. Analyze the asking price of similar properties in your area, set your list price accordingly, and be ready to negotiate the purchase price with buyers.
• Work with a power buyer: Companies like Orchard, will guarantee your home sale after listing it on the market for a certain amount of time. This can give sellers who are anxious about ensuring their home sale the reassurance they need in order to get top dollar for their home.

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What is a seller’s market?

In contrast to a buyer’s market, demand exceeds housing supply in a seller’s market, giving sellers more power. Buyers must compete for the low inventory of homes for sale, driving down median days on the market for listings and increasing asking prices and buyer concessions.

In extreme seller’s markets, like the one following the pandemic, cash offers and bidding wars — where buyers compete for a house by increasing their offer — become more common as buyers try to edge out their competition.

Advice for buyers

Buyers will need to be strategic about how to get ahead of the steep competition for low inventory in this market. These tips can help buyers be prepared to act when the opportunity to buy arises:

• Be prepared to buy: Not only does this mean getting pre-approved for a mortgage before house hunting, it means being ready to write an offer when you find a house that could be the one. If you wait too long, you may find that the house is no longer available for purchase by the time you’re ready to make an offer.
• Be patient: In this market, there are more buyers than houses available for purchase, which means you could end up waiting a while before a seller accepts your offer. Understand that this is a product of the market and not a reflection of your readiness or ability to buy. Don’t get discouraged — you just need patience and persistence.
• Stand out with a cash offer: A cash offer is four times more likely to be accepted by sellers in hot markets. If you want to stand out in a crowded market, making a cash offer could be the difference between getting your dream home or not.
• Work with a power buyer company: Power buyers are companies who focus their services on home buyers. Many, like Orchard, will turn you into a non-contingent cash buyer or help you buy a new house while selling yours. These advantages can make all the difference in a crowded field.

→ Get qualified for a cash offer today

Advice for sellers

Sellers have the upper hand in this market. They can make the most of their competitive advantage by following the advice below:

• Prepare your home for sale: With so many buyers and so few homes for sale, you might think you can skip the prep, but don’t. Clean, organize, depersonalize, and declutter your house to get it ready. This will help maximize interest in your home, which can drive up the purchase price.
• Price competitively: Homes generally sell for more money in a seller’s market, but that’s not a reason to drive up the asking price of your home beyond reason. You may have more difficulty enticing a bidding war if you do, and buyers won’t be able to secure financing for a home with an asking price well over it’s appraised value.
• Review all offers: Resist the urge to sift through offers for the one with the highest purchase price. Review them all and consider the terms (as well as the purchase price) when making a counteroffer.
• Consider contingencies: Contingencies can make or break a deal, so carefully review the contingencies in the offer letter from potential buyers. Offers that include mortgage contingencies, appraisal contingencies, and the like are more likely to fall through than those that don’t. In July 2022, 9% of contracts were terminated due to appraisal issues.

→ Learn more about if it’s a good time to sell your house now

Is 2023 a buyer’s or seller’s market?

The housing market is cooling, but 2023 remains a seller’s market due to the low inventory of houses available for purchase. In July 2022, existing home sales hit a high of three-months of supply, which is still below the six-month mark that is considered normal levels of supply and demand — keeping the market in favor of sellers.

Experts are forecasting a more balanced market in 2023 with a slight favor to sellers, driven by the following factors:

→ Learn why housing prices likely won't drop anytime soon

Slowing but still growing appreciation

Freddie Mac forecasts home values to continue to grow throughout 2023, albeit at a slower clip than the pandemic years. Increased home values will motivate homeowners to sell while driving competition.

Low inventory

While the pandemic has driven down the number of homes available for sale, so too has a decades-long housing inventory shortage. While supply levels are trending towards more normal levels in 2023, they are unlikely to satisfy the demand from the millions of buyers who were priced out and have been waiting on the sidelines since the pandemic.

Rising interest rates

The Federal Reserve has announced its commitment to fighting inflation by raising interest rates. While the Federal Reserve doesn’t dictate mortgage rates directly, their actions have a ripple effect which is reflected in them. Given their pledge to keep raising interest rates, experts estimate that borrowers won’t see another cut in mortgage rates until the end of 2023 at the earliest. These hikes will continue to dampen demand.

Market uncertainty

There have been rumblings about the possibility of a market crash. However, a market correction in select regions is more likely. In a market correction, overvalued markets gradually reduce to more normalized levels (about 10% less than their peak). Supply and demand level out, and more buyers are able to compete in these red hot markets. If you’ve been looking to buy or sell in one of these areas, it may be worth it to wait until the market normalizes.