Buyer's Market

A buyer’s market is exactly what it sounds like: Conditions are such that they put purchasers in the driver’s seat, allowing them to negotiate deals that are to their advantage. (The opposite situation is referred to as a seller’s market.)

In general, five to six months' worth of inventory (also known as absorption rate) is considered a balanced market. Go below above that number and you're looking at a buyer's market; go below that, and the market is likely to favor the seller.

Related Links

Inventory

Multiple Listing Service

New Construction

Housing Starts

While real estate is cyclical, with peaks and troughs expected, a buyer's market can occur for a variety of reasons:

• A neighborhood can be in a state of change. Sellers, for instance, may be aging out and looking to downsize or retire to areas that cater to seniors.
• External conditions, such as the economy, the local job market or other financial factors such as interest rates or looming recession, may be making some locations more desirable than others and motivating sellers to move.
• The area may be overdeveloped, meaning the population doesn’t support the supply of homes available.

Buyers in such markets generally can take their time about making a decision to purchase—there’s no rush because there are so many properties on the market that if one is sold, there still are many more to choose from.

In a buyer's market, concessions and lowered prices are all within reason. F. Muhammad/Pixabay

Purchasers have the upper hand in buyer’s markets: They can negotiate a price reduction or other concessions, such as requiring the seller to pay part of the closing costs or to make home repairs or to give them some time to move in.

A buyer’s market is characterized by:

• Large numbers of “for sale” signs
• Homes staying on the market for a long time
• A drop in real estate prices
• Sellers' willingness to "sweeten" deals with extras

Buyers can explore these factors either with a local real estate agent or by doing research on online real estate sites such as Redfin.com and Zillow.com.