Buyers Market Vs. Sellers Market

Buying & Selling Real Estate
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Buyers Market Vs. Sellers Market

Nick J.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes

I wanted to take this opportunity to open a discussion on what you think a buyers market is compared to a sellers market.

I personally don't believe there is such a thing as a buyers market.

The way I think is this, Regardless of if the housing market is strong or weak, this or that, its never really a buyers market and that term is made up.

The seller determines if they want to or will sell at a particular price. Although your property is only worth what someone is willing to pay for it doesn't mean you have to sell it at that price. Sure, some motivated sellers sell at a deep discount but that doesn't mean it's a buyers market.

I've always believed that Real Estate is always a sellers market, whether they(the sellers) are selling discounted compared to a recent sale(s) or not, it is still their choice therefore it's always and will always be a sellers market.

What do you think/believe?

Without getting hijacked or turning this into a political discussion I would like to hear your philosophy between the two. Do you believe that just because sellers are selling at a perceived discount that it is a buyers market or do you believe the same as I and the term 'buyers market' is a term used to spur purchases and growth?

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Steve Nicewarner
Bellevue, WA · Member since 2008 · 156 posts · 57 votes
16y

By definition, a "market" requires that a buyer and a seller mutually agree on a price and thereby establish a "market value". Sellers can offer their product [whether it be a house, a car or a potato] at whatever price they want, but if they can't find a buyer for it at that price it won't sell.

The key difference between a buyer's market and a seller's market is which side is in shorter supply. During the go-go days earlier this decade there were plenty of people who wanted to buy property, and fewer people who wanted to sell it. Thus sellers had greater influence -- it was a seller's market.

Today, the situation is reversed. There are scores of people who want to sell, but many of the buyers have been scared away. So, the buyers that remain have a greater influence -- it's a buyer's market.

Having said all the above, I would also be among the first to agree that emotion plays a bit part in determining which side we're on. In my local market [Durham, NC] for example, we have neighborhoods and price points where there are plenty of buyers and the numbers say it should be a seller's market. People listen to the news, however, and, "knowing" that it is a buyer's market, keep prices depressed.

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  • Steve Nicewarner
    Bellevue, WA · Member since 2008 · 156 posts · 57 votes
    16y

    By definition, a "market" requires that a buyer and a seller mutually agree on a price and thereby establish a "market value". Sellers can offer their product [whether it be a house, a car or a potato] at whatever price they want, but if they can't find a buyer for it at that price it won't sell.

    The key difference between a buyer's market and a seller's market is which side is in shorter supply. During the go-go days earlier this decade there were plenty of people who wanted to buy property, and fewer people who wanted to sell it. Thus sellers had greater influence -- it was a seller's market.

    Today, the situation is reversed. There are scores of people who want to sell, but many of the buyers have been scared away. So, the buyers that remain have a greater influence -- it's a buyer's market.

    Having said all the above, I would also be among the first to agree that emotion plays a bit part in determining which side we're on. In my local market [Durham, NC] for example, we have neighborhoods and price points where there are plenty of buyers and the numbers say it should be a seller's market. People listen to the news, however, and, "knowing" that it is a buyer's market, keep prices depressed.

    5Reply
  • Nick J.
    OP
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    16y

    I see your point about inventory and relation to the buyers/sellers market.

    0Reply
  • Brian LevredgePro Member
    Investor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
    16y

    I tend to agree with Steve. There are plenty of examples where sellers are selling because of external influences. In addition we have many reluctant owners/sellers in the form of banks. If more sellers were selling due to their freedom to do so, then it would be a seller's market.

    0Reply
  • Shaun Steckler
    Foreclosure Specialist · Lafayette, LA · Member since 2009 · 68 posts · 31 votes
    16y

    If you know what to look for, where to look for it and what to do with it once you find it, it's always a buyer's market.

    Serious investors know how to find those situations that create compelling reasons to sell. You want someone who has to sell.

    If you're dealing with a seller who's actually going back and forth with you about the price, you're barking up the wrong tree.

    0Reply
  • Vikram C.
    Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    Nick, I think these subjective terms refer to the negotiating position of the parties. If sellers are dictating terms and have buyers willing to accept them, it is a seller's market. If buyers have the upper hand during negotiations, it is a buyer's market.

    3Reply
  • Nick J.
    OP
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    16y

    Vikram, I agree with you on your point.

    Even if the buyers have the upper hand in negotiations, the seller is still the ultimate decision maker though, making it a sellers market in my eyes.

    1Reply
  • Vikram C.
    Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    Nick, it takes both a buyer and a seller to do a deal. So the decision is in both people's hands, not just the seller's. In RE, it is possible that the timing of the decision could make it seem like it is the seller who is deciding, but without the buyer's offer he will have no decision to make. (In the stock market it is simpler because bids and asks get matched so there is no timing issue with the decision.)

    0Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    16y

    The seller has the decision not to sell at a certain value but that is the individual decision and does not represent the market. The market is the sum of individuals. Every market will have outliers, but the outliers do not determine the market.

    If there is more supply than demand, then prices drop making it a buyers market. If there is more demand, than supply then the prices increases making it a sellers market.

    3Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Theoretically (i.e. if could be measured) when the amount of buyers equal the amount of sellers, that market would be natural. Using that as the baseline, every time the amount of sellers accede the amount of buyers, it would be considered a seller market and vice versa.

    0Reply
  • Vikram C.
    Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    Eddie, in all markets the number of buyers = the number of sellers. Every transaction will have one buyer (or buying entity/group) and one seller.

    The rest of the crowd is simply made of people who tried to buy or tried to sell.

    I find this interesting because the media often has headlines about money "leaving" the stock market or money "flowing into" the stock market. In reality, of course, money neither flows into nor leaves when a stock is traded in the secondary market because there is a buyer and a seller who cancel each other out. (Technically, because both pay commissions, there is always a little bit more that flows in than flows out.)

    0Reply
  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y

    Nick, it is also possible to say everything you said in reverse.

    I wanted to take this opportunity to open a discussion on what you think a buyers market is compared to a sellers market.

    I personally don't believe there is such a thing as a sellers market.

    The way I think is this, Regardless of if the housing market is strong or weak, this or that, its never really a sellers market and that term is made up.

    The buyer determines if they want to or will buy at a particular price. Although your property is only worth what someone is willing to sell it for doesn't mean you have to buy it at that price. Sure, some motivated buyers buy at a deep discount but that doesn't mean it's a sellers market.

    I've always believed that Real Estate is always a buyers market, whether they(the buyers) are buying discounted compared to a recent sale(s) or not, it is still their choice therefore it's always and will always be a buyers market.

    What do you think/believe?

    Without getting hijacked or turning this into a political discussion I would like to hear your philosophy between the two. Do you believe that just because buyers are buying at a perceived discount that it is a sellers market or do you believe the same as I and the term 'sellers market' is a term used to spur sales and growth?

    Interesting turnaround?

    1Reply
  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    16y

    Not very exciting, but buyers market/ sellers market is simply determined by how many months of inventory are on the market. There is a set dividing line, can't remember how many months. Four months? Six months? Anything under is a sellers market. Anything over is a buyers market.

    1Reply
  • Ted Harris
    Real Estate Investor · Portland, OR · Member since 2009 · 660 posts · 244 votes
    16y

    I think most consider 6 months inventory a neutral market ...

    0Reply
  • Nick J.
    OP
    Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    16y

    Good point Jawsette!

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    A buyer's market is a situation where sellers try to undercut each other on pricing in order to be the one seller that manages to attract the scarce buyer. We see that now in the apartment rental market where the "one month free" signs fly high.

    A seller's market is when many buyers bid up prices in an attempt to purchase the few available items.

    So, in real estate, inventory serves a measure. High inventory means few buyers for a large available inventory. Low inventor means there are few choices and buyers snap them up quickly.

    Here in our area, and I suspect many others, evaluating the overall market is the kind of silliness the press and NAR promote. For million dollar plus homes, inventory is very high. Six years, I heard recently, though I heard 10 years not too long ago. The only way to move a particular property is to apply the terms we use here frequently - be the best available deal. Buyer's market. Under about $200-250K, inventory is much smaller, and its only a few weeks under $100K. So, anything that comes onto the market in that space has multiple offers and sells quickly. Seller's market.

    Same is true for stocks. In both cases there are indeed one buyer and one seller for each transaction. However, in a "buyer's market", there are lots of people who want to sell and few buyers and prices decline. Sometimes, especially for stocks, very quickly. Vice versa for a seller's market. It's not the number of transactions that define a market, but the number of desired transactions.

    0Reply
  • Vikram C.
    Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
    16y

    Jon, this is one of those rare instances where I have to disagree with you. Prices do not decline because there are fewer buyers then sellers in the entire market but because there are exactly zero buyers at the last traded price. There will always be enough buyers at some price - the new equilibrium price, for example.

    The best way to think of a price decline is to look at it as a re-rating of an asset. When the "market" suddenly discovers risk or realizes the future is not as bright as once thought, assets get rerated and nobody is willing to pay the old price and prices decline.

    There is never a dearth of buyers or sellers. Even in limit-up or limit-down situations, the dearth is caused by the limit and not the real absence of buyers or sellers.

    1Reply
  • Eddie Ziv
    Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Vikram C.:
    Eddie, in all markets the number of buyers = the number of sellers. Every transaction will have one buyer (or buying entity/group) and one seller.

    The rest of the crowd is simply made of people who tried to buy or tried to sell.

    I find this interesting because the media often has headlines about money "leaving" the stock market or money "flowing into" the stock market. In reality, of course, money neither flows into nor leaves when a stock is traded in the secondary market because there is a buyer and a seller who cancel each other out. (Technically, because both pay commissions, there is always a little bit more that flows in than flows out.)

    OK, Vikram. You got me there. I should have called "buyers" "Potential Buyers" :lol:
    0Reply
  • Jim Wineinger
    Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
    16y

    Nick, the other half of your question, is the percieved half.

    Supply and demand will always have an major influence on things, but through advertising, ect we can create an percieved supply and or percieved demand which will thusly affect the price people are both willing to buy and sell at.

    This is also true with stocks. Sometimes the percieved supply and or demand is created by the media which gives you the upturns in a down market or the downturns in an up market.

    These percieved demand and supply impulses are temporary in most cases.
    But do affect the actual prices and the average prices.

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    There is no question in my mind that both buyers markets and sellers markets have existed and will continue to do so, as will neutral markets (which is 6 months inventoryby the way).

    The question as to which market cycle your market is in is a simple supply and demand factor (excluding the detailed nuances that can also exist, such as the media frenzies created between 04-06'.

    In my local area market, it is a sellers market. Why? Because inventory levels for homes are at record lows (even lower than in 05) becasue banks have been holding on to inventory and manipulating/controlling the market. Excluding short sales and REO properties, equity sales are few and far between. In my valley alone, we have several hundred thousand people residing here and in my zip code in the valley of approx. 8-10 zip codes, there are only 14 equity sales for properties between $300k and $400k. Buyers are waiting in a very long line and thus, equity sellers with good condition properties in good neighborhoods can comand their price and terms.
    Quite the opposite in many other cities across the US, there is so much inventory and so few qualified buyers that buyers can name their price and terms - henc e abuyers market.

    That all said, I would have to agree with the following statement coming from an investor standpoint: (I am paraphrasing)
    "It is always a buyer's market for an investor who deals only with a motivated seller in a desperate situation in which the investor can control the price and terms."

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