A common question I am asked is about whether it’s a buyer’s or seller’s market. People want to know because they understand that can shift leverage and risk during a real estate transaction. Who has more leverage can vary by season or year—or even by location—but it’s often strongly influenced by larger market factors:
- interest rates
- availability of housing overall
- cost of renting at the time
Background on risks and protections
Massachusetts real estate practice allows an array of protections for a buyer as they pursue the purchase of a property. A home inspection and a condominium review, for instance, are opportunities a buyer has to perform due diligence and learn as much as they can before deciding to move forward.
Each stage of vetting represents risk for a seller. The seller will have accepted a buyer’s offer with a binding contract to sell, without the ability to accept any other buyer’s offer while that contract is in place.
The seller will hope they and their chosen buyer will get from the offer stage to the closing without a hitch. Otherwise, the seller may need to make concessions or possibly return their listing to market, having lost precious time in the season—and lost time can mean lost money.
A buyer’s protections
A buyer can make their offer contingent on each stage of vetting. That means they can withdraw their offer if they don’t find a situation suitable for moving forward. If the offer is contingent, that stage of vetting protects any deposits the buyer has made up to that point:
- home inspection
- condominium review (if this applies, it covers a review of the association’s governing documents, budget and meeting notes, and of the common area structures)
- purchase and sale agreement
- financing approval (of both the buyer and the property). This can include discussion if the property appraises too low for the buyer’s intended financing.
While it’s the buyer’s prerogative to explore these areas of information gathering, what happens regarding that information can often depend on the current market: what trade-offs a buyer or seller might need to make given who has more leverage in the marketplace at the time.
Where the market comes in: who takes on the risk?
What do a buyer and seller do with information about a broken window, an outdated heated system, a failing deck, or pending special assessment in a condominium? What happens if the property appraises at a lower amount the the buyer offered to pay?
Who will take on the responsibility of such items largely depends on the buyer’s alternatives for going under contract on a comparable property, and a seller’s alternatives for contracting with a new capable and willing buyer.
If there are plenty of attractive, affordable properties to choose from and the competition among buyers is not prohibitively challenging, the buyer can have the seller share responsible for many issues that come up: require the seller to repair or replace a leaking hot water tank or ask for a credit to offset the cost of upgrading an old roof. The buyer’s leverage is that they can walk.
If there are few properties to choose from in the market, and plenty of eager and able buyers who are willing to compete fiercely to get what they need, the seller can have their choice of buyer.
If that’s the case, aggressive buyers may reevaluate what they’re willing to take on or forgo in order to win a property. Some buyers may choose to consider the expenses of potential repair items—upgrading a heating system, replacing a hot water heater—as part of their purchase costs. They may even be prepared to help a seller pay off a special assessment or replenish an association’s budget. The seller’s leverage is that they have more attractive buyers to choose from.