How to Determine a Seller's Market

Written by Posted On Sunday, 21 April 2019 05:00

What the Heck is a Seller's Market?

There are no better words in the English dictionary that can make a home owner do their infamous happy dance than these four little words: “it’s a seller’s market”.

So….you ask….how do you know if it really is a seller’s market and what exactly does that mean?

I’m going to bring you back to ECON 101 for a moment. Remember when your professor spent two weeks explaining the concept of supply and demand? Well, I hope you took notes.

In a seller’s market, there are fewer homes for sale with more buyers out there looking to purchase.  The factors that lead to more buyers in the market could be:  sustained low interest rates, high employment rate, legislative changes which make it easier to purchase a property – events and conditions that make buyers think it would be a good time to invest in a home.

In my experience, there are some advantages to the sellers in this kind of market. Typically, home prices will rise, buyers will quickly make offers and sometimes, buyers will compete for a property. This can lead to a bidding war, ultimately driving the price of the home up above expectations

Now on to your next question. How do I, as a potential seller, know when it really is a seller’s market?

How to Recognize a Seller's Market

There is a thing called "Absorption Rate" that many REALTORS and economists alike will use to determine whether the market is in a buyer's or seller's favor. First, a REALTOR will use the MLS to determine the number of homes closed in your market over a specific period. Next, they will divide the number of homes by the number of months in the period. This gives a per month absorption rate. Lastly, they will divide the rate into the number of current listings. This will yield the month's supply of homes. A six months' supply is considered a balanced market - when the number of listings roughly equals the number of buyers. Numbers over six represent a buyers' market and those below, a sellers' market. 

(Absorption Rate=  (Current Listings)/ ( (# of homes closed in a specific period)/(number of months in the period) ) 

How to Price a Home for Sale

After a REALTOR determines the absorption rate for a specific area or neighborhood, they will create a Comparative Market Analysis (CMA) of the subject property. This report will be based on the recent (usually within six months) comparable homes sold in the neighborhood or surrounding area (usually within one mile radius). This analysis will give the REALTOR an idea of what comparable homes are selling for, and how quickly. Using this information, along with the absorption rate, the agent will be able to come up with a listing price that will guarantee that the home sells quickly for top dollar. 

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