Buyer's Market Definition

When going into business, you might need to know what it means to be in a buyer’s market. The definition of a buyer’s market means that supply is high and prices are low.

What is a buyer’s market?

The buyer’s market definition identifies a supply and demand effect where an excess supply of a good exists in the market. A buyer’s market means lower prices and more chances for buyers to bargain and negotiate the terms of a sale. Because sellers must compete for customers, they’re more likely to accept less money for their goods and services. Therefore, buyers are said to dominate the market.

The opposite of the buyer’s market is the seller’s market, where the supply is low and sellers dominate transactions. In a seller’s market, buyers have fewer choices and must close the sale quickly. Buyer’s and seller’s markets operate in cycles, depending on economic factors like inflation, income, and interest rates.

Buyer’s Market Benefits

The business definition of a buyer’s market means supply is high and prices are lower. A small business owner can take advantage of the buyer’s market by purchasing goods and replenishing inventory at lower prices. Because buyers dominate the market, you can search for the best price and bargain the terms of the deal. Buyers have the ability to drive sales, and sellers prioritize consumer preferences.

Buyer’s Market Considerations

The disadvantages of a buyer’s market include sellers losing cash flow. Because supply is high and demand is low, sellers are more likely to meet buyers’ demands. Sellers must be creative and use discounts and other schemes to boost sales. Thus, in a buyer’s market, the cost of goods is low, but it’s more challenging to find a buyer, and not all goods are sold. 

What are other names for a buyer’s market? 

Here are some other names for a buyer’s market:

• Soft market
• Economic depression
• Recession
• Weak market

Business owners can recognize a buyer’s market by an excess inventory and a downward trend in prices.

Buyer’s Market Examples

Although applicable to any industry, the buyer’s market definition is often used in real estate. When more houses are available on the market than buyers looking to purchase, it’s a buyer’s market. 

Consider a situation where a manufacturer employs most of the workers in a town at a large factory. If that factory closes, the workers must leave the town to find work, and homes flood the market. Because buyers aren’t scrambling to move to the town without jobs, homes may take longer to sell as demand slows. Listings may have several price reductions before selling for less than the original asking price. Sellers may offer enticing incentives to close the deal quickly, like covering closing costs or providing a renovation credit.

Summary

A buyer’s market happens when there is an excess supply of a good or service and, therefore, lower prices. Because sellers are in competition for buyers, they’re more likely to accept buyers’ demands to make a sale.

We Can Help

We help the small business owner with every aspect of business and compliance. Whether you’re trying to understand the buyer’s market meaning or taxes for a limited liability company, we can help. We provide comprehensive Business Formation Services to form your legal entity and avoid liability. Plus, use our Worry-Free Compliance Service, and we’ll provide you with the tools you need to stay in compliance in your state.