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What is a Buyer's Market?

Tricia Christensen
Tricia Christensen
Tricia Christensen
Tricia Christensen

A buyer's market refers to conditions in the sales of any type of product, where supply significantly exceeds demand. If you have a great supply of an item, the result is usually to lower prices for the consumer, or “buyer.” This can be wonderful for the consumer, but not so terrific for anyone trying to sell something when supply is high. A buyer's market is as poor for the seller as it is good for the buyer.

You will see the term used in reference to real estate. In fact, this is frequently what buyer's market means. Essentially, within an area, homes for sale greatly exceed the number of people who wish to buy a home. Home values drop and many properties remain on the market for months since the buyer has considerable discretion in being able to choose a home at the best value.

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Sometimes, a boom in construction can create a market for buyers, especially if real estate developers have overestimated the amount of people who want to buy new homes. If building large real estate developments is coupled with falling employment rates, the real estate market may be perfect for those who do have stable jobs and can afford to buy a home.

Falling employment rates, or refinancing during a seller’s market, when demand exceeds supply, can create problems for homeowners. Inability to pay your mortgage may necessitate selling your home, and often some sellers are in a hurry to sell their homes before home values drop more, or before banks foreclose on their loans. They are most likely to take a lower price than the list price for their homes if they absolutely must sell in a hurry.

The buyer's market can create something of a panic for people who have purchased real estate for investment. When home purchase prices go down, more houses may emerge on the market to be sold quickly before prices drop lower. Usually this panic only enhances the buyer's market, because there are even more homes available, and more room to bargain for a desired price.

Both buyer’s and seller’s markets can create distress, in the former case for the seller, and in the latter for the buyer. Trends tend to reverse and change, suggesting that if you can hold onto your home through a buyer's market, it’s likely the prices will once again change to your advantage perhaps even with a few months.

Along with lower prices and lower demand, the buyer's market affects interest rates. When people aren’t buying homes, banks aren’t making money off new loans and the people paying interest on those loans. Interest rates on loans tend to drop, and buyers can take advantage of this because it tends to spark a high degree of competition in the banking world to offer people the best deals on loans. Further, during a buyer's market, banks are more likely to consider lending to people with less than perfect credit.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent WiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

Learn more...
Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent WiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

Learn more...

Discussion Comments

Crispety

@Sunshine31 - I know that is true. I have heard of people getting a property for $20,000 or $30,000 cheaper than they anticipated only finding out that the property has additional liens of $40,000 or more.

I also want to say that in this buyer’s market if you do not have to sell than you can simply rent out your home. This way you can still get money towards your mortgage without having to compromise on the sale price of your home.

The property values will return eventually and if you can wait for the turnaround it might make sense. I know that is what I would do.

sunshine31

@Icecream17 - I wanted to say that another plus with these types of bank owned property auctions involve the title. These properties have a clear title so you won’t have to worry about hidden liens or tenants that you will need to evict like you do with a traditional judicial auction at the courthouse steps.

Those auctions are really risky and you really have to do your homework. There is a buyer’s premium of about 5% that you pay the auction house for the bank owned auctions but at least you are getting a clear title. I have looked into attending a bank owned property auction, but have not had the guts yet.

icecream17

@Comfyshoes - I know what you mean about the great deals out there. I went to a bank owned property auction and I could not believe the number of bidders.

The place was packed with people. I am seeing more and more bank auctions out there because the supply of homes is so great that banks do not want to hold on to these properties anymore.

If you decide to buy a home this way make sure that you have a firm price range in mind because auctions are really emotional and you may overbid for a property and regret it.

I bought a property this way but I knew what I could afford and was not going beyond that figure. It also helps to get preapproved for a loan so that you can really understand what your parameters are.

Most of these auctions will also have sponsoring banks that will provide loans, but you want to be able to get the best deal and if you are preapproved you can see if the banks at the site will offer you a more competitive deal or not.

comfyshoes

I know that we are in a buyer’s market with respect to the real estate market. It is really a great time to buy because home prices are really depressed in many markets.

I picked up a vacation property that I plan on using as my primary home during retirement. I don’t worry if the price drops because it is a property that I enjoy in the summers and throughout the year and really get a lot of enjoyment out of.

I also plan on holding on to my property so the fluctuations in price don’t bother me. I know that oceanfront property holds its value better than most properties so from that perspective I think that the property will appreciate once the real estate market returns to a more balanced state.

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