Buyers are everywhere during seller’s markets, and hard to find during buyer’s markets. Buyers are supposed to have more control during buyer’s markets, so why are they so reluctant to participate?
The transition from a seller’s market to a buyer’s market requires a new skillset, and mindset.
We haven’t had a seller’s market now for a few years. You know it’s a seller’s market because homes sell quickly and often for a lot more than it seems they should. Buying a home seems like a great investment, buyers are literally competing against each other to buy homes, ‘what could be a better investment?’ is the theme. Everything is in the seller’s favor, they love it.
Buyer’s markets are the opposite, homes are slow to sell, buyers are slow to act. Caution rules the day, the sense of urgency is lacking. Prices might even come down, although in this market they’ve mostly remained flat.
More about seller’s markets:
Sellers love a seller's market because the dynamics are driven by scarcity and competition, and usually increasing prices. When inventory is low, multiple buyers often bid on the same property, driving up the price and willingly remove or reduce contingencies meant for their protection, such as inspections or appraisal.
For buyers, while this environment is stressful, it is simple. Often the sense of “winning” rules the negotiation. There are plenty of other buyers providing the social proof that they’re making a sensible move.
The buyer’s market, and our current market:
In a normal buyer’s market there are many homes to choose from. Prices are often adjusting downwards, and social proof of other buyers is typically non-existant. Sometimes agents ask the listing agent “let me know if it sounds like anyone else is going to write an offer”. Deep down we all know a buyer is in a better negotiating position when they’re the only buyer, not when they’re competing with someone for the house.
Today’s market isn’t a traditional buyer’s market. For various reasons the months of inventory metric has stayed relatively tight, right around 3. That’s quite the contrast to the Financial Crisis era when buyers “enjoyed” months of inventory many multiples higher. The high point of inventory during that time frame was 19.2 months. High inventory often causes buyers to be even more reluctant to act due to an overabundance of choice.
How buyers can learn to like buyer's markets:
If a client’s previous experience was looking for a home in a seller’s market, here is how they should adjust to be successful in a buyer’s market:
1. The negotiating style changes, except for when it doesn’t. Every market has competitive multiple offer situations with buyers competing against one another, even during the most challenging of markets. However, these situations are much less frequent during a buyer’s market. Buyers should do a decent amount of looking at homes before making an offer so they are comfortable with what represents a good value in their price range.
2. Don’t require “social proof” before making an offer. Don’t be the person who decides to write an offer only after someone else expresses interest. If you like a house that means someone else will like it too.
3. Get fully approved with your lender and resist the urge to change your credit situation while you look for homes. This is true for all buyers in all markets.
4. Separate transactions: If you’re selling first and then buying, do everything you can to separate the transactions in to two separate negotiations. You don’t want the extra pressure of having them tied together.
5. Be cooperative and tough at the same time. The buyer side requests in a buyer’s market are often much different than those in a seller’s market, but that doesn’t mean the sides need to be adversarial. Maintaining a spirit of cooperation in a challenging environment is an art, but it’s possible, and everyone has a better experience.
6. Remember why you’re buying. If you’re buying a home to live in, timing the market is hard. Not only do you need to get the timing right but there also needs to be a home available that you like. Buying a home should be a long term decision, timing doesn’t need to be perfect.
What can buyers do? Find an experienced agent who has time for you. Ideally, they should be familiar with the dynamics of different market cycles as different skill sets are required. If you’re buying it might sound good if your If your agent typically works with buyers, but is it because they’re new? New agents often work primarily with buyers, but it’s most helpful to have a deep understanding of the motivations of both sides of the transaction. Agents should be continuously studying the market, ready to adjust for every situation that arises. This helps build good negotiating practices in agents of all experience levels.
