Buyer's Market? Seller's Market? or ............. Lender's Market?

A Realtor on the west coast recently coined a new phrase to describe his market - the "lender's market."  I like it!  Yes, he was voicing his frustration about California-crazy market conditions that are not the same as ours, thankfully.  His concept does explain, however, some aspects that may affect you as a consumer here in the metro east side of Saint Louis.  Let's look at it.

Classically, a buyer's market is characterized by a large inventory and a relatively slow sales volume.  It is often expressed in terms of the absorption rate - the number of months it would take to sell off the inventory at the present rate of sales.  Most would agree that we have a buyer's market here today.  In terms of control, buyer's rule!  Buyers tend to have greater control of the time frames and also many of the terms and conditions in the contract.  Buyers typically pay less than they might in an active seller's market, and usually have a larger selection of properties to choose from. 

A seller's market is just the opposite.  I remember when it was that way - not too long ago.  In a "hot" seller's market there is a smaller and faster moving inventory with prices generally increasing. Sellers are more in control to determine the outcome of any successful effort to purchase. Buyers tend to pay more, often more than the listed price.  

Well, our market is somewhat mixed, because the nature of properties in our market is mixed.  Let's consider that there are "normal" properties for sale and then there are "distressed" properties for sale.  For normal properties, yes, this is a buyer's market.  There is a great inventory and sales are slow.  With today's low interest rates and prices this is a great time to be a buyer.  But not so fast!  There is that other market segment - distressed properties, where buyers are definitely not in control.  Who is?  Well, that's what I like about the term "lender's market." 

So, if you are looking for a great deal on a foreclosed property, welcome to the lender's market.  There are a few things to know:  You as a buyer are not in control - the lender is in charge.  Second, you will pay the market price for the property, considering its condition (sorry, you are not the only buyer looking for that great deal!)  And third, things may take a long time.  Let's look at two kinds of distressed property.  When an owner wants to sell a property for less than is owed on the property, it is referred to as a short sale.  The buyer and seller may agree to a sale; but enter the lender, who must approve the sale, which may incur a loss to the lender.  In fact there may be more than one lender involved, as all liens against the property must be satisfied before the sale is completed.  The other common type of distressed property happens after the rather lengthy foreclosure process.  When a property has been foreclosed and owned by the lender(s), it is called Real Estate Owned ( REO ). Lenders involved in distressed properties are clearly in charge as they determine if they will accept, or not, even the highest offer on the property. In the case of short sales, they can either agree to writing off the short-fall of the loan or opt to continue the foreclosure process. Often they make no decision at all.  It is more difficult to predict the decisions made by lenders than we can for normal owners of property.  What appears to make common sense to a buyer or seller may not appeal to a lender from their vantage point.  It makes it hard to negotiate with them. Lenders also tend to set their own rules concerning purchase contracts and processes.  The second golden rule seems to prevail:  (Whoever has the gold, makes the rule.)  Buying or selling a distressed property is not for the faint hearted or inexperienced.

It may sound as if I personally do not like dealing with distressed properties.  Not true.  They are an important and possibly growing segment of our market.  What is important to me is that customers, and my clients, understand the differences of buying and selling distressed properties in the "lender's market." 

I sure like that term!

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