What is Seller’s Market?
A seller’s market is an economic marketplace where the product or commodity’s demand is more than its supply. As a result, the seller decides the price of the product or commodity.
This term is commonly used in the real estate marketplace to describe a situation where the number of buyers interested in purchasing a house is more than the number of houses available for sale. Here, the market favors sellers, hence known as the seller’s market, and buyers have to bid among themselves to purchase the house.
Although the concept of seller’s market is popular in the real estate industry, it is also applicable in various industries like oil, cola, automobiles, gold, agricultural products, etc.
Table of Contents
- What is it?
- Strategies for buyers and sellers
- How do we know if it’s a buyers’ or sellers’ market?
- Seller’s market Vs. buyer’s market
Characteristics of Seller’s Market in Real Estate
The characteristics of the seller’s market in real estate are as follows:
1. Fewer houses for sale in the market
In a seller’s market, fewer houses are available for sale in a particular location or marketplace. So this indicates there are few numbers of sellers selling their houses. Therefore, there is a chance of getting more buyers looking to buy homes in that particular area.
2. High demand from buyers for purchasing
There is a significant number of potential buyers looking to purchase homes in this marketplace. This demand may be due to low-interest rates, favorable climatic conditions, economic growth, and more.
3. The seller decides the price of the property
In this marketplace, sellers have the advantage of setting higher prices above the market price for their property. This high demand for houses from buyers and limited supply from sellers may increase the price for similar properties in that marketplace.
4. Bidding wars among buyers for the same home
This scenario of multiple buyers expressing interest in the same property leads to bidding wars. Buyers compete with each other to secure the property.
5. The seller sells the property quickly
As this marketplace favors sellers, they sell the property quickly because there is a high demand for properties. Here, sellers can choose from interested buyers bidding for high prices.
Let’s understand the seller’s market in depth with the following example.
Let’s consider a scenario in Sunnyvale, California, where a seller, Mr. David, wants to sell his house at $1.48 million at Taaffe Street. Since it was a famous area, five rich families were interested in buying that property. The seller then decided to increase the selling price by taking the opportunities as there were a lot of interested buyers.
Mr. Smith bid higher than the others of the five buyers and decided to purchase the property by paying $10,000 more than the original price. So, Mr. David took this opportunity and quickly sold the property to Mr. Smith at a higher price.
This is a typical example that explains the condition of high demand and limited supply in the seller’s market.
In real-world scenarios, onion sellers control the prices of onions. Suppose there was not much yield of onions this year, and the sellers decided to keep the onions in the warehouse for a long time. This causes the demand for onions to increase in the market. Due to this increased demand, the seller controls the supply and price of onions. They bid higher prices based on the market demand because everyone wants it, and there are no other means of sourcing them.
Strategies for Buyers and Sellers in a Seller’s Market
The strategies buyers and sellers should adopt to enter the seller’s market are as follows.
A) Strategies for Buyers
It can benefit buyers entering the seller’s market, but it should be clear to the buyer what type of property they want to purchase and the budget to get the right deal. They can follow the strategies below.
1. Get ready to bid
Buyers should be ready to bid with other competitive buyers for the same property and to get the best deal. Buyers should consider the market fair value and their purchasing power because bidding higher on the house with a low appraisal value will be a loss.
2. Take pre-approval for mortgage (loans)
When there are many buyers, getting pre-approval for a mortgage from the lender is important. A buyer who shows that he is financially capable of purchasing the property at that very moment wins the battle.
3. Hire a real estate agent to take quick action
The seller’s market has high demand, so the buyer must take action quickly to get the deal. Therefore, buyers must hire or engage with the right real estate agent to inform them about the new sale list. The agent can also guide buyers in avoiding any mistakes when dealing with purchase agreements.
4. Search for multiple options
Buyers need to search in other areas to increase the number of potential homes. Buyers can look for neighborhoods adjacent to their first choice to get more options in a competitive market.
B) Strategies for Sellers
The following are some strategies that sellers can follow to gain more benefits in this marketplace.
1. List the property at market value
Sellers must list their property at market value, not more or less. This is because when there are many buyers, there will be a price bidding war, and prices will rise high in this bidding. The property’s true value will attract more buyers than offering higher pieces with no buyers.
2. Create an appealing presentation of the home
Sellers must invest in making their homes visually appealing by painting and performing minor repairs. Sellers can also upload professional photographs and videos on online platforms or social media. It is to show the property’s beauty and nearby attractiveness.
3. Choose the best deal
Sellers must choose the best deal for their property and potential buyers with strong finances. It means choosing a buyer ready with funds or pre-approved finance documents.
4. Ready with another home to reside
When there is a good deal, the seller might sell the property or house in one or two weeks in the seller’s market. That is why the seller must be ready with another place to reside.
How Do We Know if it’s a Buyer’s or Seller’s Market?
You can determine whether the real estate marketplace is a buyer’s or seller’s market by considering the factors below.
- Number of homes for sale: If the number of homes for sale is more than buyers willing to buy, it is a buyer’s market. If the number of buyers is more than the available home for sale, it is the seller’s market.
- Property prices: If a property’s price is higher than market prices, it is the seller’s market. In contrast, if the price of a property is low, it is a buyer’s market.
- Days on Market (DOM): It determines the average days a property stays on the market. A shorter DOM suggests a seller’s market, while a longer DOM indicates a buyer’s market.
- Absorption rate: You can calculate this by dividing the number of homes sold in a month by the total number of homes available for sale that month. So, an absorption rate of at least 20% indicates a seller’s market. Meanwhile, the absorption rate below 15% is the buyer’s market.
Seller’s Market Vs Buyer’s Market
The following is the difference between seller’s and buyer’s market
|The demand for property or homes is high in comparison to its supply.
|The supply of property or homes is higher than its demand.
|The property takes less time to get sold.
|The property takes more time to get sold.
|Sellers have the bargaining power.
|Buyers have the bargaining power.
|The property inventory is low.
|The property inventory is high.
|The market consists of a high number of buyers and fewer sellers.
|The market consists of a high number of sellers and fewer buyers.
|It is favorable for sellers.
|It is favorable for buyers.
To conclude, the seller’s market is a tough competition for buyers to purchase goods or homes among many buyers. It is called a seller market because the decision to sell at which price lies in the hands of sellers rather than the buyers.
Frequently Asked Questions (FAQs)
Q1. What are the tips for buying a home in a seller’s market?
Answer: You can follow the below tips when buying a home in a seller’s market.
- Start hunting for houses and list sellers according to specific areas or locations.
- Get approval or pre-qualified for a loan or mortgage.
- As a buyer, you should proceed with houses under your budget.
- You can provide earnest money to the seller to be ahead of other buyers.
- If you didn’t find any house in your preferred area, look for another location or hold for some time to seek better options in the future.
Q2. What is the disadvantage of the seller’s market?
Answer: The disadvantages of a seller’s market are as follows.
- Buyers may have fewer options due to a limited inventory of sales.
- Due to high demand for homes, bidding wars occur, and buyers may pay more than the house’s fair market value.
- Buyers often make quick decisions to secure a property before the seller sells it to other competitors. This rush in decisions can lead to loss.
- Sellers negotiate the price, and buyers have a limited chance for negotiation on price and purchasing terms.
- The pressure of competing with other buyers and the fear of losing the desirable property lead to emotional stress for buyers in a seller’s market.
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