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Home Finance

Jul 8, 2022

Seller's vs. Buyer's Market: What You Need to Know

5 minute read

Buying and selling a home can be overwhelming. You have to engage a number of different professionals throughout the transaction, manage large amounts of money across multiple accounts, and coordinate the uprooting of your living situation as you know it. All that can be enough to stress any person out, but on top of that, you need to understand the state of the real estate market. One of the most common things you hear is a reference to a buyer’s market or a seller’s market, but what does that even mean? Let’s clear it up.

What does it mean?

Simply put, it's all about demand and supply. A buyer’s market occurs when there are more homes available than buyers. A seller’s market occurs when there are more buyers than homes available. A buyer’s market is more favourable to buyers and a seller’s market is more favourable to sellers. 

Buyer’s Market

In a buyer’s market, you typically see lower prices. As the supply of homes available outpaces the demand for them, prices tend to decrease to a point where demand and supply better intersect. There is of course a number of other factors that impact the price on individual homes (eg. location, size, yard, etc.) but on average, home prices decline in a buyer’s market. 

This is all great for buyers, as it tends to give them a better negotiating position. With more selection available, they are able to push for more flexibility on the items that matter most to them, such as price, offer conditions, and closing timelines. That said, buyers should be aware of other factors that might impact their negotiating position. As mentioned earlier, the state of the market is not the only factor that impacts house prices, so buyers should take the entire picture into consideration.

A buyer’s market isn’t ideal for sellers as they represent the opposite side of everything listed above. On average, sellers should expect to see less demand for their home, which will impact their negotiating position and ultimately the final sale price. This reduces the likelihood of a bidding war, which is typically an effective tool for sellers to help drive up their selling price. 

Seller’s Market

In a seller’s market, you typically see higher prices as there is significant competition for the available supply. In contrast to a buyer’s market, this puts the sellers in the driver's seat when it comes to negotiating the final details of a sale. 2020, 2021, and early 2022 saw a thriving sellers market in Canada, with housing prices increasing significantly during that time.  

This puts buyers in a difficult position as they’re competing against a larger pool of buyers for a smaller pool of available properties. This often results in buyers having to see, and even put offers on, a large number of homes before they successfully find ‘the one’. During a seller’s market, it can be an incredibly difficult time for buyers, especially if they are first time home buyers as they don’t get to benefit from the sale of a previous home in a hot market.

A seller's market puts sellers in a very strong position. It allows them to be more strategic in their listing price, viewing dates, and offer deadlines. These factors are often leveraged to drive interest and demand for a property, with the ultimate goal of driving up the purchase price. This also allows seller’s to be less flexible when it comes to closing conditions, ultimately reducing the risk of a sale falling through.

Tips for Buyers

In a buyer’s market:

  • Get clear on your criteria. You have the opportunity to be picky in your search, so don’t feel pressured to settle, especially if you’re early in your search. 

  • Understand your comparables. As you’re in the driver's seat of the negotiation, having a strong understanding of recent sales of comparable homes and the direction prices are going will help you when determining your offer. 

  • Utilize offer conditions. You never know what can happen between the time you put an offer on a home and the time the deal closes. A buyer’s market puts you in a position where closing conditions are more likely to be accepted by the seller, so don’t be afraid to build in protection for yourself.

In a seller’s market:

  • Get clear on your max price. It’s easy to get carried away in a seller’s market and blow your budget. Stay true to your budget from the start and you’ll save yourself a lot of pain down the road.

  • Be patient. Take the time to go see a lot of properties, follow the sale prices of those properties, and don’t feel pressured to buy the first, fifth, or even the tenth place you look at. The search can be a long journey but it will help you feel more confident when you do ultimately decide to engage in the offer process. 

  • Beware of bidding wars. This ties in closely with having clarity on your max price, but it’s so important that it’s worth emphasizing. Bidding wars are designed to play on buyer’s emotions to drive up offer prices. In an ideal world, you should avoid bidding wars, but if you’re forced to engage in one, don’t let emotions trick you into a bad financial decision.

Tips for Sellers

In a buyer’s market:

  • Marketing is key. The details of your listing become even more important in a buyer’s market. You can’t necessarily count on your property selling itself. You should hire talented professionals to support you with your listing, such as photographers, stagers, and trades for cosmetic upgrades.

  • Hire an experienced agent. A buyer’s market is where a selling agent really earns their keep. An agent with strong marketing skills, a great network, and ability to negotiate will make all the difference. 

  • Get ahead of conditions. Offer conditions are more prevalent in a buyer’s market and you don’t want that holding up a sale, or worse, causing a sale to fall through. Consider having a home inspection done ahead of time and fixing any issues that you foresee being a problem for a buyer.

In a seller’s market:

  • Have a pricing strategy. Work with your agent to determine the best pricing strategy for your home. Consider what outcome you’re hoping to achieve. Do you want multiple offers? Do you want your price to illustrate the minimum price you would accept? These are the types of questions you’ll want to ask yourself as you and your agent determine your listing price.

  • Know your buyer profiles. Consider what types of people might purchase your home and cater your selling strategy to them. For example, selling to a single person will look very different than selling to a family, which will look very different than selling to an investor. Having an idea of who your home might appeal to will help you make key decisions when it comes to listing your home.    

  • Be realistic. Just because you’re operating in a sellers market, it doesn’t mean your home will sell for 2x what it’s worth. While you hope to sell for a premium in a hot market, nothing is guaranteed. If your expectations become too inflated during this time, it could result in you passing on a great offer that might not come again. 

Beyond all the considerations in different states of the market, there are a huge number of factors that go into buying and selling a home. This is why it’s so incredibly important to have amazing professionals supporting you. From your real estate agent to your real estate lawyer, they bring expertise and function that you won’t be able to replicate on your own. 

At Doormat, we marry technology with an obsession for customer experience to bring you the most transparent and stress-free real estate legal services in Canada. Check us out today to see how we can provide the best possible home transaction experience!