You may have heard about the term “Seller’s Market” but do you know what it actually means? Today, we’re answering the question, What Happens in a Seller’s Market?
A seller’s market is an economic term used in the real estate industry. It refers to a housing market in which homes are in high demand and in short supply.
The opposite of a seller’s market is called a buyer’s market when there are more homes for sale than there is demand.
Effect on Prices
So, what effect does a seller’s market have on housing prices when you have limited housing and high demand? It typically means that homes sell for higher prices than they would in a buyers market because there aren’t as many homes for sale, thus more people bid on a single property, and this leads to an increase in competition.
Effect on Selling Time
Homes may also sit on the market for less time in a seller’s market because of the ratio of buyers to homes for sale. In a seller’s market, homes that are priced correctly tend to receive multiple offers. Someone might place their offer on the property only to find another 10 people are bidding on the same property.
Key points of a seller’s market.
1. Buyers have less leverage over sellers because of the large number of buyers competing for the same property. If your offer on a home has conditions, while others don’t, a seller will likely have the flexibility to go with other offers that suit them better.
2. Fewer homes on the market mean higher prices for these properties due to increased competition between buyers. When homes are scarce in a seller’s market, people become willing to spend more money on them. When homes are abundant in a buyer’s market, people have more options and are less likely to bid over asking or to have competition.
3. New home construction revs up because builders know demand is higher, and they know they can capitalize on a surplus of hungry buyers.
In real estate transactions, both parties win, but clearly, a seller’s market does favour sellers. But since sellers themselves are usually buyers too, meaning that wherever they move to, they’re likely to face multiple offer situations when bidding on a home.