Real Estate Buyer VS Real Estate Seller

It's more than just prices

Normally, when a person wants to sell or buy a property, their most usual motivations don't lead them to stop and assess the state of the real estate market. 

This is because most people think of their home as a place to live and not as an investment. In fact, real estate is an investment.

Like any investment, there are good and bad times to sell. When it's a bad time to sell, it's usually a good time to buy. That's why you'll hear terms like "buyer's market" or "seller's market". 

Another way of referring to these trends is known as measuring market temperature - a buyer's market is "cold" and a seller's market is "hot".

Here you will learn how to gauge the temperature of the market and what to look for to determine whether it is a buyer's market or a seller's market.

Buyer's market = 6 or more months of stock

Seller's market = less than 3 months of stock 

Neutral market = 3-6 months of stock

Stock is a measure of the quality of the turnover of purchases between sellers and buyers. The stock index is a simple calculation, it is equal to: Number of Houses for Sale divided Number of Monthly Sales, i.e. it is a measure expressed in months. The market's equilibrium point is 6 months, i.e. if the stock of homes for sale is sufficient to cover less than 6 months we have a market favorable to sellers, if the stock of homes is greater than 6 months we have a market favorable to buyers.

To illustrate how this indicator can help us perceive a crisis or even a real estate bubble, the graph below shows the housing stock in the United States during the years of the real estate recession and the housing stock over the last 4 years.

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What is the difference between the buyer's and seller's real estate market?

Buyer's market  Seller's market  Market Neutral
High residential stock  Low residential stock  Stock is normal compared to previous months/years
The prices of previously sold houses are higher than the prices of advertised houses.  The prices of the houses advertised are higher than the prices of the houses sold before. The prices of the houses sold previously are close to the prices of the houses advertised.
Houses on the market for months or more Houses are sold in days or weeks Houses are sold in 30 - 45 days on average

Inventory (stock)

When there are more homes available for sale than there are buyers to purchase them, those buyers are enjoying a cold market. Buyers have more homes to choose from, which increases a buyer's chances of finding the perfect home. When they find the perfect home, they will have less competition for it, which can help them avoid a bidding war.

On the other hand, the sellers' market - or real estate market "hot" - is the best financial market to sell in. Why is that? Because there are more buyers than houses available for purchase.

If your market is too hot, you can require buyers to waive appraisals and inspections, within reason. It's always a good idea to allow the buyer to do a home inspection.

To help you understand the American market, it is very common for a professional appraiser to go to the house before the purchase (most of the time hired by the bank that will finance the house) to validate that the sale price is "fair".

Comment: Even in the hottest markets, there are legal issues to be aware of before selling a house too quickly. For example, without waiving the right in writing, federal law says that you must give the buyer 10 days to inspect whether the house has been painted with a paint that has lead pigments (for example).

House prices

In a cold real estate market, serious sellers are usually willing to negotiate. This means that you can probably buy a house for less than the list price, and the seller may be willing to pay some or all of your closing costs, called in the United States closing costs, the costs that are paid at the notary's office when the deed is signed. 

It's an easier and more relaxed experience for buyers. When fewer buyers are purchasing homes, the numbers of closings are also lower. Overall, the buyer's market will experience a decline in average sales prices.

In the seller's real estate market, serious buyers are usually willing to pay more than the list price. This means that you can probably sell your home quickly and possibly for more than you asked for it. More buyers are purchasing homes, which will result in higher closing sale numbers and an increase in average sale prices in general.

For comparison's sake, in a neutral market, which favors neither buyer nor seller, the prices of homes sold are close to the prices of homes advertised. Sales figures will have stabilized. And the average sales prices over a period of time are level.

Time on the market

The average time it takes for a house to sell, or the "days on market" (DOM) is a useful way of assessing whether a market is hot or cold at any given time.

In a buyer's market, houses have larger DOMs. You may notice that the "For Sale" signs remain up for longer and a more ubiquitous presence of real estate advertising on lawns, billboards and street benches.

In the seller's market, you may notice that real estate ads are disappearing and the "for sale" signs are only displayed a few days before a "pending sale" or "sold" sign is attached.

NOTE: The average time a house stays on the market under neutral conditions is around 30 to 45 days. It's worth noting that this logic is based on a correctly priced house. Even in a market that is very hot in favor of the seller, it doesn't usually reward those who advertise their house above market. The buyer may decide to pay more, but his motivation to visit the house is lower when the listing is already above market. 

Neutral real estate markets are balanced. Interest rates are usually affordable and the number of buyers and sellers on the market is equal. The balance does not tip in either direction, which means that the market is normal without experiencing volatile swings. 

For some reason, we have not experienced neutral markets in most metropolitan areas for several decades. However, in the mid-20th century, neutral markets were more common.

Calculating 'Months of Stock'

Although it's not the only metric used to assess whether it's a seller's market or a buyer's market, a key term you'll hear repeatedly is "months of inventory", as we mentioned at the beginning of our text. This refers to a hypothetical scenario in which no new homes become available for sale.

If this were to happen, and buyers could only choose from homes that are already on the market, "months of inventory" is how many months it would take to buy all the homes on the market. Calculating this metric is not difficult when you have the data:

  • Find the total number of active listings on the market in the past month.
  • Find the total number of transactions sold or closed last month.
  • Divide the total number of listings by the total number of sales, which results in the number of months of stock remaining.

Here's an example: let's say there were 8,722 listings available last month. In that period, 1,021 sales were closed. That gives us about 8.5 months of inventory, making this a buyer's market.

NOTE: Six "stock months" are considered neutral. More than that, it's a buyer's market (more stock means more choice for buyers and less competition). Anything less, and it becomes a sellers' market.

[mpc_alert font_color="#ffffff" background_color="#2eabbf" padding_divider="true" padding_css="padding-left:20px;"]Read also:  Real estate is a great hedge against the impact of rising inflation[/mpc_alert][mpc_icon_column title_font_color="#e4246c" title="Summary" title_margin_css="margin:5px;" mpc_icon__mpc_tooltip__border_divider="true" mpc_icon__mpc_tooltip__padding_divider="true"]In the real estate market, a buyer's market is considered "cold" and a seller's market is considered "hot". When there are more homes available for sale than there are buyers to buy them, those buyers are enjoying a cold market and it's a great time to buy. A hot real estate market is the best financial market to sell because there are more buyers than homes available for purchase. When you can think of your home as more than just a place to live, but as an investment, you'll see how important it is to synchronize the sale or purchase of your home with the temperature of the market.[/mpc_icon_column]

Any doubts?

Now that we've explained to you that all the signs show that we're not in a real estate bubble, you can consider investing in vacation homes in Orlando. To make the most of all the tips we've given you and go even deeper, you can talk directly to our relationship agents. They are always happy to talk to you to answer any questions you may have about investing in Florida.

In this article, we've covered the topic of the behavior of the real estate market during recessions because it's interesting for those looking to invest in Florida. If you would like to read more content like the one in this article, just stay tuned to our blog.

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