Key Takeaways
- In a buyer’s market, buyers have more leverage when negotiating price with the seller.
- When there is a buyer’s market, the supply of houses or other properties outstrips buyer demand.
- A seller’s market occurs when the demand for properties surpasses supply, putting sellers at an advantage.
When investing in or selling property, it is wise to know where the market stands. Buyers will want to purchase real estate in a buyer’s market. But what does buyer’s market mean, and how does it compare to a seller’s market? Keep reading for buyer’s market: defined and explained.
What is a Buyer’s Market?
A buyer’s market occurs in real estate when there is a surplus of property for sale and a dearth of buyer demand. Buyers can use the resulting negotiating power to possibly secure a lower sale price.
Note that buyer’s markets can happen on a local or national level, or both, and that buyer’s and seller’s markets are cyclical, meaning each will at some point give way to the other.
What is Supply and Demand for a Buyer’s Market?
In real estate, a buyer’s market means that the supply of properties available exceeds buyer demand. That causes real estate prices to tumble and properties to remain on the market longer. Thus, sellers must generally vie for sales, which can mean lower prices for buyers.
What are Signs of a Buyer’s Market?
To make the most of a buyer’s market, one first must be able to identify it. Signs include:
- Slowed demand. This means slower sales. Diminished demand can mean sales that take longer than the median 34 to 61 days.
- More inventory. In a buyer’s market, more properties will be listed for sale, heightening the overall supply.
- Relisted houses. Another sign is the relisting of properties that have been on the market for a time.
- Decreased prices. Listings might cycle through a couple of rounds of price reductions and houses may sell for under the initial asking prices.
- Incentives. A buyer’s market might get sellers to offer sweeteners to close the deal, such as flexible closing costs.
What is an Example of a Past Buyer’s Market?
After the pandemic began in 2020, when interest rates dropped and nearly everyone worked remotely, many people sought to buy homes, which caused housing prices to soar.
What are Tips for Buyers?
Investors who find themselves in a buyer’s market have the edge in terms of securing properties they seek to own. Still, to make the most of the market, here are some suggestions to consider:
- Get the price dropped. In this market, one need not immediately make an offer. Negotiate the price down as much as possible, while giving the seller room to independently drop the price.
- Continue negotiating. Buyers may be able to gain concessions they might not otherwise be able to. Perhaps they can get closing costs reduced or secure credits for renovations.
- Know what you can afford. Yes, the market is in their favor. Still, buyers should first know the amount of house they can handle. It is a good idea to check one’s credit report to give them an idea of what kind of mortgage and down payment they can afford.
- Get an inspection. This step must not be skipped, regardless of how attractive the property looked online or during a brief, sunny tour. An inspection could uncover issues that could snag a better deal – or preclude a purchase.
What is a Seller’s Market?
Because there is less inventory, buyers’ choices are limited, and properties sell quickly. In this landscape, sellers can increase their prices and may get offers that exceed their asking prices.
Because properties sell faster in such a milieu, buyers must compete to secure a property, which can lead to bidding wars. This usually means that sellers can increase their asking prices.
What is Supply and Demand for a Seller’s Market?
In a seller’s market, there are fewer properties for sale – diminished supply – and an increased demand of buyers looking to buy. In other words, while demand for properties is high, relative inventory is low.
What is an Example of a Past Seller’s Market?
The real estate market in the early-to-mid 2000s was considered a seller’s market, as properties were in increased demand and likely to sell, their price or condition notwithstanding.
What are Tips for Sellers?
Because sellers must compete to lure buyers in a seller’s market, here are some suggestions for heightening interest in one’s property:
- Get the property in good shape. Make sure the house is clean and organized before it is listed or shown.
- Price the property fairly. While properties are more apt to sell for more in a seller’s market, it is still best to price them fairly since that could attract more interest.
- Wisely mull offers. Oftentimes, sellers are so interested in selecting the highest offer that they forget to analyze each buyer’s financial strength. It is annoying and disappointing to have to put a property back on the market when a deal breaks down.
- Gain pre-approval. It is wise to require that all buyers who need financing be pre-approved for a loan. This means that buyers’ credit history and finances are verified.
- Be on the lookout for contingencies. Offers that include stipulations could permit buyers to back out of sales agreements if certain conditions are not met.
What is the Current Market – Buyer or Seller?
While the nation remains in a seller’s market, there are indications that the emergence of a buyer’s market might be imminent. Housing inventory began creeping up last fall, and Redfin data expects this year to register the first year-over-year price decrease since 2012.
Is it Better to Buy in a Buyer’s or Seller’s Market?
A buyer’s market gives investors more properties from which to choose, meaning they have a better chance of finding the right real estate for them. It also gives them more time to shop around and ensure that their finances are in order.
What Does a Buyer’s Market Mean for Overall Market Sentiment?
An ample supply and limited demand results in a buyer’s market. This usually means that buyers will not immediately snap up properties as soon as they are listed for sale. Prices can flatten or decrease, and sellers are typically grateful for each offer.
What Does a Buyer’s Market Mean for Real Estate Investors?
When it comes to shopping for real estate properties for investment, investors have more advantages in a buyer’s market. Buying under such market conditions can yield securing a preferred property for less than the asking price, which could be a fortuitous nice entry into real estate investing.
How to Invest in Real Estate?
There are a number of ways to break into what remains a hot real estate market, including real estate private equity, which targets institutions and those with high net worth.
But one need not be ultra-rich to invest in real estate. After all, there are opportunities through rental properties and other private real estate investing.
Another popular way to invest in real estate that is less costly than real estate private equity is through real estate investment trusts. REITs, which allow investments in real estate without the physical property, are enterprises that own commercial properties such as office buildings, retail spaces, hotels, and apartments.
Consider Yieldstreet, an investment platform that has funded some $3.2 billion in alternative investments, with a 9.7% internal rate of return since 2015 (as of July 2023). Offerings include a Growth & Income REIT fund that makes equity investments nationwide in key commercial markets. Property types, with minimums as low as $10K, include self-storage, hospitality properties, multi-family, retail, and industrial.
No investment is risk free. However, having a modern portfolio with an asset mix that includes alternatives such as real estate can mitigate overall portfolio risk. In fact, diversification is key to successful investing.
Alternative Investments and Portfolio Diversification
Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.
In some cases, this risk can be greater than that of traditional investments.
This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.
To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
Summary
Investors and anyone who buys or sells property should be aware of market conditions, then proceed accordingly. Recognizing the considerations of a buyer’s market is particularly key in real estate, which can be used to diversify one’s investment portfolio while potentially generating steady returns.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
Inflation, stock market volatility among top reasons investors adding private markets to their IRAs
To understand more about what is driving this trend and gain insight into investor goals, we surveyed a random sample of more than 120 high-net-worth investors with an SDIRA.
3 months ago
2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]