February 14 2020
If you are looking at homes in a busy real estate market, such as houses for sale in Toronto, you may have come across the term “sellers’ market”. But what exactly is does this mean?
Simply put, there are three main types of market conditions: buyers’, sellers’, and balanced. These terms generally refer to the amount of available listings in relation to sales activity – aka supply and demand – though because the housing market is cyclical in nature, other factors such as the economy and season can also impact market conditions.
Whatever the cause, however, it is important for market participants to understand them, and how they may affect their own real estate transactions.
Read on for your guide to understanding buyers’ and sellers’ markets and what that means for you in the real estate process.
Whether a market is considered sellers’, buyers’, or balanced, depends on a technical metric called the Sales-to-New-Listings Ratio (SNLR). The calculation of this ratio is the division of homes sold by the number of new listings over a specific time period, such as monthly. If the ratio percentage for the market is under 40%, it is considered a buyers’ market, and if it is over 60% it is a sellers’ market. Between that range, the market is considered to be balanced.
In a sellers’ market, since the number of prospective buyers is greater than the amount of available newly-listed homes, market conditions are more advantageous for those looking to sell. One of the reasons it is beneficial is that it’s more likely that a seller will be able to sell their home for more than its list price, with multiple buyers vying to put in the most competitive offer. This also provides the sellers with the opportunity to negotiate some of the conditions set in these offers; buyers may forgo a financing condition or home inspection in order to gain a competitive edge in a sellers’ market.
In some very hot sellers’ markets, buyers may even look for more unique ways to stand out. One common method is to form a personal connection with the property and the seller, either writing a letter or verbally informing them of why owning the property would be important to you, and emphasizing your commitment to the deal.
Buyers in a sellers’ market should also be prepared to make a decision on a property relatively quickly as properties often do not remain on the market for long.
However, while it may be financially more beneficial to list your home in a sellers’ market, keep in mind it goes both ways – you may have a difficult time purchasing your next property in the same market once yours is sold. As this can lead to the need for temporary accommodations or rental housing, it’s an important cost for sellers to keep in mind.
In a buyers’ market, the reverse is true: there will be more homes available than there are interested buyers. This can lead to pricing discounts on properties to entice what available buyers are on the market, and also offers them the opportunity to negotiate for more favourable conditions and flexibility in their offers.
Buyers may also have a bit more time to shop around and look at different properties in a buyers’ market as homes often remain on the market for a longer period of time.
For sellers looking to make their listing more attractive to potential buyers in a buyers’ market, they should look to improve their home’s presentation and overall appearance, such as investing in professional staging and photography. It is also important for sellers who are eager to sell during a buyers’ market to be accommodating to perspective buyers.
Whether or not you’re looking to participate in a buyers’ or sellers’ market, you real estate agent will be essential to understanding these market conditions, and the strategy you should take. For example, your agent will be able to help you determine what price to list at or what other things need to be done in order to help you be more competitive. If you are looking to do a bit of research on your own, the Canadian Real Estate Association (CREA) provides national statistics for the housing market each month, including their SNLRs. Getting more information can help you to strategize better and plan ahead!
If you are looking to buy a home soon, one way to get a leg up on the competition is to get pre-approved for a mortgage. Not only does pre-approval lock in a rate and features, it also gives insight into what your maximum affordability can be with a home.
One mistake home buyers make is going into a home hunt without an actual idea of what they can afford. Fully understanding affordability is a great way to ensure buyers make the right purchase decision (not buying a house beyond their means - leading to financing issues), and if a bidding war comes, they can know what their max bid can be.
To get pre-approved, you can start your application in 5 minutes here.
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