Buyer's Market

What is a 'Buyer's Market'

A buyer's market is a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiations. The term "buyer's market" is commonly used to describe real estate markets, but it applies to any type of market in which there is more product available than there are people who want to buy it. The opposite of a buyer's market is a seller's market, a situation in which demand exceeds supply and owners have an advantage over buyers in price negotiations.

BREAKING DOWN 'Buyer's Market'

The concept of buyer's and seller's markets stems from the law of supply and demand. This law states that a supply increase amid constant demand puts downward pressure on prices, while a demand increase amid constant supply puts upward pressure on prices. If supply and demand rise or fall in tandem, prices are generally affected much less.

A market swings from a buyer's to a seller's market, or vice versa, when the level of supply or demand moves without a concomitant change in the other, or when the two move in opposite directions.

Buyer's Market Characteristics

In a real estate buyer's market, houses tend to sell for less and sit on the market for a longer period of time before receiving an offer. The competition in the marketplace exists between sellers, who often must engage in a form of price war to entice buyers to make offers on their homes, rather than making offers on ones down the street.

A seller's market, by contrast, is characterized by higher prices and shorter sales times. Rather than sellers competing to attract buyers, the buyers compete against one another for the limited supply of homes available. Consequently, bidding wars often transpire in a seller's market, resulting in homes selling for more than their list prices.

Buyer's Market Example

During the housing bubble of the early-to-mid 2000s, the real estate market was considered to be a seller's market. Property was in high demand and was likely to sell even if it was overpriced or not in the best condition. In many cases, a home would receive multiple offers and the price would be bid up above the seller's initial asking price.

The subsequent housing market crash created a buyer's market in which a seller had to work much harder to generate interest in his property. A buyer expected a home to be in excellent condition or priced at a discount, and could often secure a purchase agreement for less than the seller's asking price for the property.

In certain boom-and-bust markets, such as Las Vegas and Miami, median home prices fell by more than half from their seller's-market peak to their buyer's-market nadir.

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