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October 9th, 2023 at 11:00 am

The housing market is deeply fluid and easily swayed by various factors in local and national economies and politics. This can get even more granular as housing markets within specific neighborhoods and communities can vary drastically with housing markets on a larger scale.

People, of course, buy and sell homes all year round. However, depending on the state of the housing market, you may benefit more as a buyer or as a seller in the real estate market. During a seller’s market, you would have more leverage in selling your home. Learn more about what is a seller’s market and how to get the most out of them below.

Understanding the seller’s market

As with most aspects of the current economy, the real estate market at its most basic comes down to supply and demand. Supply essentially refers to how much of a product is actually available, while demand refers to the amount of that product that people want and are able to purchase. So when it comes to what is a sellers market, the buyer demand for homes exceeds the supply.

A low supply of homes on the market essentially gives home sellers more power. For example, say you are trying to sell a house in a neighborhood with a solid school system, good public transit, and other generally attractive amenities, but you are one of the few sellers who have a property on the market. With such limited inventory in an otherwise desirable area, you have more control over the process and the price of your property in this market condition—though understanding what is a CMA in real estate is essential regardless of the type of market in which you find yourself. Often in a seller’s market, you can entertain multiple offers, and it is almost expected for bids to surpass the initial asking price.

As a potential buyer, you may have more trouble due to the increased competition for the fewer homes in a hot market. Buyers may have to increase their budgets or negotiate with the seller to make accommodations. An interested buyer may, for example, forgo a home inspection or other common requests to speed up the process, take more of the financial burden, and make the offer more appealing to the seller.

Other times, a seller’s market may be characterized by plenty of homes on the market but an increase in demand. Demand can be driven by various market forces, most commonly greater accessibility to mortgages and low-interest rates. As interest rates drop, more people can get mortgages, which naturally means more people who can afford to buy a home. Mortgage rates in 2020 dropped significantly, thanks in part to the COVID-19 pandemic. That reportedly resulted in a 14 percent increase in first-time homebuyers compared to 2019. The pandemic also created a greater desire for larger living spaces with outdoor areas.

What is a buyer’s market?

While the concept of a seller’s market may be top of mind, its counterpart is equally vital to understand, especially for prospective homebuyers looking for the best deals. But what is a buyers market exactly, and how does it contrast from a seller’s market?

Understanding the buyer’s market

A buyer’s market arises when the supply (number of homes available for sale) exceeds the demand (the number of buyers seeking to purchase homes). This excess in inventory tends to shift the power dynamics towards the buyer, making it an optimal time to buy a home.

Challenges in a buyer’s market

While a buyer’s market offers various advantages, potential homeowners should be aware of certain challenges. For instance, as homes remain on the market longer, there’s a potential that property values in the area could decline over time. Also, while sellers might be more open to negotiations, too much haggling could dissuade a potential deal.Understanding the distinction between a seller’s and buyer’s market can greatly aid your decision-making process in real estate. With this knowledge, plus the support of a trusted real estate agent like our California realtors, you’re in a better position to strategize and make informed decisions, ensuring a smoother property transaction—meaning you can start enjoying the benefits of owning a home sooner.

Selling in a seller’s market

Returning to the topic at hand, a seller’s market means higher prices, faster sales, and more bidding wars. Essentially, you can dictate much of your home’s sale and usually come out on top. While things are decidedly easier on you, you still have to be smart and strategic about your home sale to maximize the profit while streamlining a quick, painless process.

Plan your move before you sell

It is fairly normal to plan your next move before you sell your home, but outside of a seller’s market, you can take a bit extra time. Your home may stay on the market for a while, and the process of closing on a deal can take even longer.

In a seller’s market, that all gets sped up, so if this is your first property purchase, be sure to understand do first time home buyers need a down payment before you go ahead and fall in love with your dream house. According to a report from the National Association of REALTORS®, properties stayed on the market for just 22 days in the four weeks prior to April 11, 2021. In the past, a home that may have taken 11 or more weeks to sell may sell in as little as 3 weeks in a seller’s market. Some homes are never even publicly listed. Instead, they are sold privately.

That all means that you should be prepared to move out sooner than later. That might mean renting for a little bit until your next permanent spot is ready, but it can be worth it in the long run.

Prepare your home

Selling your home in any type of market still requires some preparation. At the very least, preparing your home for sale should involve cleaning and decluttering your home and making it look overall presentable.

However, because you are working with a seller’s market, you don’t necessarily have to be as thorough as usual. In a seller’s market, buyers will typically overlook small defects and most cosmetic issues. This means that it’s usually not worth the money or time to go through larger renovations, like installing all new appliances in the kitchen. If you do want to make some updates, go for the cheaper, easier ones. A fresh coat of paint on the exterior walls and some of the main rooms can go a long way.

New carpets can be another affordable and easy update, but even then, old carpets usually are not enough to deter a buyer in a seller’s market. Even if you install new carpets, buyers may decide to simply tear them out anyway.

The main things you have to worry about in terms of staging:

Limit your showings

In a non-seller’s market, you are generally at the behest of potential buyers with your showings. You have to stay flexible, maybe even allowing for showings at off-hours or during the weekend.

In a seller’s market, you can be much more restrictive and limit the days and hours when you show your property. People want what they cannot have, which applies even more in seller’s markets. Setting showings to specific days and hours also leads to buyers touring your home when other buyers are present, which builds further competition that can drive offers.

Be strategic in your pricing

In a seller’s market, you may be tempted to aim for the highest possible price, but buyers are more informed than you think. Overpricing your home will still turn off many buyers and leave your property languishing on the market for longer. Even in cases where a buyer does agree to a significantly high price, they may not be able to close on the deal. Lenders usually will not approve loans that are larger than a property’s appraised value.

At the same time, you don’t want to undercut yourself and end up with less of a profit than you were hoping for. Finding that sweet spot is tricky. Look at comparable homes that have recently sold, as well as similar homes that are currently in escrow. Once you have determined your market value, set your list price to just under that number. That might seem counterintuitive, but you will attract more buyers while providing room for bidding.

Be careful in reviewing offers and bids

Once you have a handful of bids and offers on your home, make some simple notes to keep track of and differentiate each offer. The offer price can seem like the most important or tempting part of the offer, but there are so many other factors involved, including:

It’s also become more common for buyers to send personal letters that detail their lives, their families, and their reasons for wanting to purchase your specific property. Some sellers ignore these types of emotional appeals, but it’s always worth considering. If a specific buyer’s story does speak to you, it may be worth considering.

A higher down payment is always a good thing. Large down payments essentially mean that the buyer has to borrow less from the lender, which reduces the risk of the buyer not qualifying for a loan.

The fewer contingencies, the better

It’s also important to look at contingencies. Contingencies are requirements written into the purchase agreement. You have to meet those contingencies in order to complete the deal. If you do not meet the contingencies, the buyer can walk away from the deal. These can slow down the entire process and lead to sales failing at the last minute.

This commonly includes appraisal contingencies, wherein the buyer’s offer cannot be more than the home’s appraisal value. Inspection contingencies require a home inspection and force you to pay for or complete any repairs prior to closing.

Thankfully, in a seller’s market, buyers are more willing to waive certain contingencies to make sure they close the deal and get the property. Even if the overall asking price is low, it may be worth agreeing to the offer if the buyer removes certain contingencies.

Cash is king

Of course, much of that goes out the window if the buyer is willing to buy the property in cash. Cash simply means that neither you nor the buyer must worry about a mortgage. No mortgage means not having to deal with lenders, appraisals, and all the other extra things involved with the process. That also means a faster selling process and closing periods. A cash sale can take as little as 14 days.

Ready to list and sell your home?

A seller’s market is the ideal time to sell your home and maximize the money that you get out of the deal. With some preparation and planning, you can make the most out of a seller’s market. If you need any help selling your home or getting the most out of the seller’s market, consider working with a Berkshire Hathaway HomeServices California Properties seller’s agent.

Sources: Investopedia, thebalance.com, Homelight, bbt.com, NY Times

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