Michael’s Corner – Episode 1 – What is a Buyer’s Market?
Hi there! Michael from the Michael Smith Team here! My team and I get asked a lot of the same questions over and over. Don’t get me wrong, it’s great! We love helping people! If you’ve ever listed a home with us, you know that we don’t really like the reactive approach. We tend to focus on being proactive and getting your home in front of other people.
We thought to ourselves, “why don’t we take the same approach to some of the most common questions we are asked?”. We appreciate that most people don’t do this all day, every day (like we do), so today I want to start something that we’re dubbing ‘Michael’s Corner’! It’s going to be a periodic update where we answer some of the most common questions we get asked so that when you are ready for your next purchase (whether it’s your first home or you’re downsizing because the kids are gone), you have the information you need to make the right decision for you.
Today’s topic we’re going to be covering is what is a buyer’s market, a seller’s market, and a balanced market? Exactly what does that mean? What is the definition? What does that look like? How does it affect you in practical terms?
In a nutshell, we’re talking about supply and demand. We all remember that from high school economics classes, right?! There is no official definition of when we cross from a balanced market to a seller’s market or from a balanced market into a buyer’s market, but there are some guidelines that most of us follow.
A seller’s market is typically three or three and a half months (or less) of inventory. What do we mean by inventory? Let’s say there are a thousand buyers this month in Calgary. If we have three months of inventory, that means we have three thousand homes on the market. That means there are only three homes for every buyer. People tend to get very excited about this and it tends to lead to higher prices and so on and so forth. I’ll cover that more in a second.
A balanced market is three to six months of inventory. That definition varies a little bit; some will say three and a half to five and a half months.
A buyer’s market is typically five and a half to six months or more of inventory.
What exactly does this mean to you in practical terms?
Let’s start with the seller’s market.
It’s been a little while since we’ve been in a seller’s market in Calgary, but for those of you who’ve been around awhile, you will remember that we’ve been through a couple of these in the last 15 to 20 years.
If you’re a buyer in a seller’s market, things you can expect:
- Competition (and lots of it!) – You must move very fast on these properties! When that ‘one’ comes up, you need to be there day one or day two viewing it and ready to write an offer.
- Financing ready – You’ll want to have all your ducks in a row and make sure your financing is ready to go. It’s likely that if you have any unusual clauses in your offer or conditions, it is possible the seller will move on to the next offer.
If you’re a seller in a seller’s market, things you can expect:
- Great news! Your home will probably sell faster than in a buyer’s or balanced market! However, even in a seller’s market, lots of homes still don’t sell above asking price. Typically, if your home is reasonably priced, you will have more flexibility to push the envelope (especially if you’ve got a good marketing plan that really creates urgency)
- Buyers are more likely to take a fixer-upper – This is an important one because this change can be dramatic depending on the market that we’re in. Let’s say you have a home you know is starting to age. You’re starting to think about a new furnace, you haven’t replaced your hot water tank, windows and roof are coming up to be replaced. Those are a lot of expenses but in a seller’s market, you’re much more likely to get buyers that are willing to take on that out-of-pocket cost.
Shifting gears, what about a balanced market? This is straight-forward as you can imagine.
If you’re a buyer in a balanced market, you can expect:
- A good selection of homes with decent pricing
- Perceived stability along with the consistent prices. Many people are nervous about the ups and downs. A lot of people don’t invest in the stock market for the same reason! A balanced market is, again, that three or three and a half to five and a half or six months range of inventory.
If you’re a seller in a balanced market, you can expect:
- More competition – you need to stand out a little. Pricing and your marketing plan mean a lot more. This is where sticking a sign in the yard is not necessarily going to get you the results that you are hoping for.
- Longer days on market – It’s likely going to take longer to sell your home in a balanced market as compared to a seller’s market. Try to be prepared when you are planning out your timelines.
What about a buyer’s market? That’s what we find ourselves in today in Calgary.
If you’re a buyer in a buyer’s market, you can expect:
- Great selection – lots of homes on the market
- Great pricing – everyone is trying to beat each other from a pricing perspective. This is a great chance to get some equity growth in your pocket, especially in Calgary where we are well below our long-term averages.
If you’re a seller in a buyer’s market, you can expect:
- Fierce competition – In a buyer’s market, we typically have six, seven or even eight homes out there for every buyer. How are you going to stand out against those other homes? This is where marketing plans and pricing are critical. These can create a sense of urgency to get people emotionally attached to the property.
- Longer days on market – It is going to take longer to sell your home in a buyer’s market. Make sure you have realistic timelines.
- Fixer-Uppers will be problematic – if you are up against 7 or 8 homes at any given time, buyers will likely have more turnkey options available to them. They will be less likely to take a home that requires them to invest time and money. Putting some money in to get your home ready to sell can make your home more attractive to buyers.
I hope you found this informative and useful! This formal is a bit of a work in progress so please be sure to leave your comments, thoughts and any other ideas for future episodes below! We have a bunch of these queued up but put your thoughts down below and we’ll absolutely do our best to put that together for you in a future episode.
I hope you have a great rest of your day and always make sure you have someone looking out for your best interest! Bye for now!