# Buyer's Market: Definition, Characteristics, and Example

## What Is a Buyer's Market?

A buyer's market is an environment that favors buyers over sellers. It typically develops when changes to the underlying economic conditions that shape [supply and demand](https://www.investopedia.com/articles/economics/11/intro-supply-demand.asp) mean that purchasers have an advantage over sellers in price negotiations.

### Key Takeaways

*   A buyer's market is created when purchasers have an advantage over sellers in price negotiations.
*   Buyer's markets typically occur when supply increases, demand decreases, or both happen at once.
*   The term buyer's market is commonly used to describe real estate conditions, but it can apply to any type of market where conditions favor buyers.
*   The opposite of a buyer's market is a seller's market, a situation in which conditions favor sellers.

## Understanding a Buyer's Market

A buyer's market is created by market conditions that favor buyers over sellers. Anything that increases the urgency of sellers to sell or decreases the urgency of buyers to buy contributes to a buyer's market.

> **Important**
>
> A buyer's market usually means that prices are lower, either because buyers have more leverage to negotiate with sellers or because sellers must set lower prices to attract buyers.

In terms of economic theory, this can be described using the [law of supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp), which states that a supply increase amid constant demand or a decrease in demand with constant supply will put downward pressure on prices.

Factors that can increase supply include:

*   Entry of new sellers into a market
*   Decrease in demand for alternative uses for the good
*   Technological improvements that lower the costs of production

Factors that can decrease demand, meanwhile, include:

*   Exit of buyers from the market
*   Change in consumer preferences
*   Increased availability of [substitute goods](https://www.investopedia.com/terms/s/substitute.asp)

By changing the shape of supply and demand in a way that implies a lower market [equilibrium](https://www.investopedia.com/terms/e/equilibrium.asp) price, these factors can create an advantage for buyers to negotiate for lower prices.

The term "buyer's market" is commonly used to describe [real estate](https://www.investopedia.com/terms/r/realestate.asp) 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.

> **Fast Fact**
>
> The opposite of a buyer's market is a seller's market, an environment in which supply is low and/or demand is high, giving sellers an advantage over buyers in price negotiations.

## 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. More competition in the marketplace occurs between sellers, who often must engage in a [price war](https://www.investopedia.com/terms/p/price-war.asp) to entice buyers to make offers on their homes.

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 between buyers 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](https://www.investopedia.com/terms/h/housing_bubble.asp) of the early-to-mid 2000s, the real estate market was considered a seller's market. Properties were in high demand and likely to sell, even if they were overpriced or in poor 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 their property. A buyer expected a home to be in excellent condition, or priced [at a discount](https://www.investopedia.com/terms/a/at-a-discount.asp), and could often secure a purchase agreement for less than the seller's asking price for the property.

## Are Home Prices Lower in a Buyer's Market or a Seller's Market?

In a buyer's market, prices are generally lower and there is less competition. A buyer's market is usually created when there is more supply and lower demand, which means there are more houses than buyers for those houses. Because of this, home sellers must compete to attract homebuyers, which means prices stay lower.

## What Is the Benefit of a Buyer's Market?

A buyer's market benefits buyers. Buyers have more options from which to choose because supply exceeds demand. Prices stay lower because sellers must compete to attract buyers. Buyers also have more room to negotiate on price and other elements of a sale, such as closing costs in a real estate transaction.

## Is a Home's Market Value the Same As Its Selling Price?

A home's fair market value is not the same thing as its selling price. Fair market value is the property's worth as estimated by a real estate professional. This estimate is usually based on factors such as the age of the house, its condition, location, and the value of similar homes in that location. Selling price is what someone is willing to pay for it in a sale, which can be higher or lower than the fair market value.

## The Bottom Line

A buyer's market is an environment in which buyers have an advantage over sellers. This usually happens when demand exceeds supply. As a result, prices stay low, buyers have a higher number of options to choose from, sellers must keep prices low, and buyers have more room to negotiate.

A buyer's market usually refers to real estate markets. However, it can also be used to describe any market in which buyers have an advantage. The opposite of a buyer's market is a seller's market.