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What is a Seller's Market?

Written by on Sunday, 17 January 1999 6:00 pm

Although predictions for the first quarter of 1999 are that home sales will slack off slightly, that means that the nation is still in its second best home selling economy of the past few decades. Both the National Association of REALTORS® and the National Association of Home Builders announced record sales for 1998 and are optimistically cautious about 1999, but experts already agree that nothing appears on the horizon to slow sales for spring. This year may mark the most active home buying season yet.

If you are planning to buy a home soon, and your area of choice is enjoying an economic boom, you'd better get ready for stiff competition from other buyers. There may be more buyers available than homes for sale. In some areas, supply just can't keep up with demand - that is a sellers' market.

What is a sellers' market? A sellers' market is the manifestation of conditions that favor the seller over the buyer. There are fewer homes for sale than there are buyers. Prices tend to rise, and homes sell quickly, often with little bargaining.

A sellers' market can blanket an entire city such as Dallas, one of the top three relocation destinations in the country. During some periods of 1998, the D/FW Metroplex had as little as two months inventory of homes for sale on hand.

A sellers' market can also be limited to a neighborhood, a city block or even a single street. If the street offers continued desirability and rarely has homes for sale, it acquires a marquee value, like hairpin-curved Lombard Street on top of San Francisco.

In an average market, one which favors neither the buyer nor the seller, Realtors maintain an inventory of approximately six months of inventory (homes for sale) on hand. When inventory falls below six months on hand, the market is moving into a sellers' market.

In a sellers' market, several predictable events occur. Prices start to escalate, and homes will start to sell more quickly. Homes that typically would remain on the market for three months or longer in an average market, will sell within weeks, days or even hours. In some hot markets, homes have buyers before they even are listed in the MLS system.

A sellers' market can be greatly stimulated by a robust economy and the higher salaries, job stability, and consumer confidence it engenders. The entrance of one or more major employers into a market is enough to kick off a sellers' market. A positive national economic announcement will also stimulate home sales. Word of mouth also plays a part. A neighborhood that may have lain fallow for a time may be revitalized by a group of buyers. Witness the urban renewal in many cities brought about by young non-traditional professional couples and singles, or the second and vacation home boom spurred by the Tax Re lief Act of 1997.

Realtors go into emergency mode in a sellers' market. Their businesses change radically. Since listings are at a premium, they work harder to get listings, and will network with other agents who have qualified buyers. Buyers' agency becomes more common. Many Realtors feel there is no time to waste on buyers who aren't prepared to buy or committed to working with one agent.

When homes are at a premium, they command top dollar. Even homes with little to offer - few updates, small rooms, poor location, will find that their values have been lifted by the sellers' market. Regardless of the market, homes will sell more quickly if they are updated and in move-in condition.

When homes are selling faster and for higher prices, many buyers are eliminated because they can't afford the higher prices in the neighborhoods in which they want to buy or because they can't get to the homes before they sell. Homes that are less desirable will start seeing more buyer interest.

But because a home is in a sellers' market doesn't mean it will automatically sell quickly and for a higher price. Value is still the great leveling factor in all markets. Even in a home buying frenzy, no one will give over their hard-earned money for a bad bargain. A home in poor condition or badly in need of updates will always discourage buyers because it will appear overpriced and too much work in comparison to ready-to-show homes and new homes.

Also See: What is a Buyer's Market?

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  About the author, Blanche Evans

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.