Seller’s Market

A market of more home buyers than sellers

Author: Rohan Arora
Rohan Arora
Rohan Arora
Investment Banking | Private Equity

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

Reviewed By: Osman Ahmed
Osman Ahmed
Osman Ahmed
Investment Banking | Private Equity

Osman started his career as an investment banking analyst at Thomas Weisel Partners where he spent just over two years before moving into a growth equity investing role at Scale Venture Partners, focused on technology. He's currently a VP at KCK Group, the private equity arm of a middle eastern family office. Osman has a generalist industry focus on lower middle market growth equity and buyout transactions.

Osman holds a Bachelor of Science in Computer Science from the University of Southern California and a Master of Business Administration with concentrations in Finance, Entrepreneurship, and Economics from the University of Chicago Booth School of Business.

Last Updated:January 29, 2024

What Is a Seller's Market?

A sellers market is a market with more home buyers than sellers. 

According to the fundamental rules of supply and demand, this gives sellers the upper hand because they are more likely to sell their property fast, possibly for more than they originally asked for, and with no fuss or resistance from potential purchasers.

However, home purchasers in seller's markets have it tough: They'll have to move quickly, place significant bids, and generally go above the asking price to get sellers to accept their offer over the many that may be available due to increasing competition.

Most of the American housing market is currently a seller's market. This is because there aren't enough homes available due to soaring property prices in the 20 largest U.S. cities and a lack of inventory.

According to Daren Blomquist, senior vice president at RealtyTrac, "Even though the number of homes being built has been expanding over the previous ten years, it hasn't kept pace with population growth."

Buyers will put out more effort to have their offer accepted when the seller is in charge. They make offers quickly and need to be flexible to be competitive. 

In addition, buyers in a seller's market are typically more inclined to purchase a house "as is" rather than haggling over price, terms, or repairs. On the other hand, because they frequently have multiple offers on the property, sellers can be pickier about the offers they accept.

Let us now understand what real estate analysis is.

Sellers Market: Real Estate Analysis

If you've ever purchased or sold a home, there's a good chance you have some experience determining a property's value. If the asking price is excessively high, there is a far lower chance that the house will sell. 

On the other side, you'll lose out on possible earnings if the house you're trying to sell is too low.

Before purchasing or selling a house, a real estate market analysis should always be done to ensure the price is reasonable. This research will analyze the values of comparable homes in the neighborhood to determine a fair market price

Let's start by defining a real estate market study before discussing how to complete one.

It's important to remember that a real estate market study differs from an evaluated value, which a qualified appraiser establishes. 

A comparable market analysis, regarded as subjective, informs the seller about the cost of similar homes in the neighborhood. Real estate market analyses involve many different considerations, but with proper planning, they are entirely manageable.

Your real estate agent may carry out a CMA (comparative market analysis) to help you decide what to list your house for sale or what to offer when buying one. Since no two properties are the same, changes must be made to each house price or offer.

Reasons For A Real Estate Market Analysis

If it's an investment home, this study will also show you how much you may charge for rent and how much houses identical to yours are worth in the current housing market.

A real estate market analysis, often known as a CMA, provides data that both the seller and the buyer can use to determine whether the asking price is appropriate. 

To ensure that both buyers and sellers receive a fair deal based on the property's value, a CMA should always be performed.

Steps of Real Estate Analysis

The fundamental process of evaluating the possibilities to determine whether or not to invest in a specific real estate transaction is known as real estate analysis.

If you want to purchase or sell a property but are unsure which one is offering the best deal?

The path to success is real estate analysis. Based on your property's qualities, age of construction, and location help you receive the greatest price for it.

Let's examine how you might analyze the real estate market and obtain a fantastic deal on a property for yourself.

Property Analysis 

Drive through the area where the property is located to evaluate the condition. Use online tools like Google Street View to determine which streets or neighborhoods are nicer than others if you are looking at a house located outside your area.

In addition, a property analysis considers the dimensions or area, lot size, number of bathrooms and bedrooms, amount of floors, age of construction, features and facilities, and the recent or notable improvements.

Assess the original listing price

Once you've completed the property examination, try to find the original ad online. This will offer you a clear impression of the home's general condition. 

Examine the images and descriptions for improvements, renovations, or potential problems. The builder or developer should also be mentioned to see if the house was individually designed or a cookie-cutter construction.

Check The Estimated Property Values

To get the projected market worth of the home, use online services like Zillow Zestimates

These are market value estimates, so they might not be entirely correct, particularly if the home has experienced renovations.

Check Competitors 

Finding properties similar to the one being evaluated is the next step. 

Comparable homes should have an equal number of bedrooms and bathrooms, have a size difference no larger than 300 square feet, be situated in the same neighborhood, have a comparable lot size, and have similar architectural characteristics and home age.

Final steps of the analysis

The final steps in the market analysis are the determination of a price range, physically inspecting the house, and selecting the market value. Each of these steps are discussed below.

Determine A Price Range

After gathering all the relevant data, it is time to establish your property's price range.

  • Decide on a Ceiling Value: Pick one of the three to five comparable properties worth more than yours. For example, the home might be newer, have more features, be on a better street, etc. Your ceiling value, or the highest price in your price range, will be this amount.
  • Decide on a Floor Price: Next, choose a property that is unquestionably worth less than yours. For example, it can have fewer features, be on a busy street, have a less appealing exterior, etc. Your floor price will be this amount, often known as the low end of your pricing range.

Visually Inspect The house

If possible, evaluate a home in person, as there is no better method to determine its pricing accurately. 

While touring the property, note elements that would affect value, such as the general condition, any alterations or improvements, features, amenities, required maintenance or repairs, the exterior, and the landscaping.

Choose The Market Value

You should have a price range for your property's value based on your research. Consider how everything you saw while walking through the house will affect the valuation

Next, calculate the price per square foot for each home by taking the selling prices of the comparable properties on your list and dividing those values by their square footage. 

Multiply the average price per square foot of your comparable sales by the number of square feet in the house you're seeking to sell or buy.

Choose where in the pricing range your home falls, and then decide on a final price.

Why does a seller's market exist?

A variety of variables can influence a seller's market. These consist of:

  1. Low mortgage interest rates
  2. Expansion of the local labor market
  3. Local governments have applied development restrictions that keep supply low.

For instance, consider San Francisco. People have migrated to San Francisco in large numbers in search of attractive professions as the technology industry has expanded. Housing demand increased as a result. 

The extent of new housing development is, however, limited by municipal development laws, which keep the supply modest. In the metropolis, these two variables combined to produce an extraordinary seller's market that has hardly ever slowed.

As young people left the city in favor of working remotely in less costly housing markets in 2020, the COVID-19 pandemic threatened to change San Francisco's seller's market into a buyer's market. 

Instead, purchasers made offers on the few homes that were on the market, benefiting from historically low mortgage rates. Bidding wars started. 

One home in the Bay Area, a market that is already very competitive, sold for $1 million more than it was initially listed for.

Selling Advice for Those in a Seller's Market

In a seller's market, it might be simpler to sell a house, but it takes much more than just putting a sign-out front to sell a home. It requires a plan.

  • Put up your best effort: This implies that you should keep your home in the greatest condition possible by organizing, cleaning, and staging it. This will not only encourage serious proposals but can also increase the value of offers.
  • Put a reasonable value on your house: Underpriced homes can result in bidding wars if many bids exceed the asking price.
  • Check out your buyers: Accepting an offer from an unqualified buyer runs the risk of falling through in the future after you've already turned away better ones. Also, purchasers have negotiating power over you when they know a deal has fallen through.
  • Prevent extraordinary events: Offer conditions like appraisal and inspection stipulations that can make it simpler for the buyer to walk out of a deal. Consider selecting an offer with fewer conditions.

Three Techniques for Sellers

In a seller's market, do house sellers even need a plan? When there is a lack of available inventory and buyers are lining up at sellers' doors, it appears that you can sell any property in any condition.

However, a few things to consider to achieve the best price for your house.

List Your House For The Total Market Price

To start a bidding war, you may want to price your home high because you know the market is hot or low. However, your best option might be to put your house on the market at its current value. 

Overpriced homes can turn away potential buyers, and mortgage applications can be turned down when an appraisal cannot support a high price.

Understand How To Select The Best Offer

The best offer isn't always the same one that will close on schedule and with the least difficulty. 

Even if it isn't the highest offer, the best offer is likely the one with the strongest financials. This means it is all cash with proof of funding or a pre-approved buyer with documented financing.

Plan Your Next Residence

There's a reasonable probability that your house will sell in a few days in a hot market. The offer might close in a week or two if it is in cash. When inventory is low, it might only take 30 to 45 days if it's a typical offer with conditions. This is still plenty of time to find a new place to live.

The Seller's Vs. Buyer's markets

Like other markets, the housing industry goes through cycles. Interest rates, the state of the economy, and consumer confidence can all significantly impact these cycles, which can result in either a shortage or a surplus of homes.

A seller's market exists when there is a housing shortage or more potential purchasers than available properties.

On the other hand, a buyer's market occurs when there are more homes for sale than potential buyers. The market is balanced when there are as many buyers as there are homes for sale.

You're welcome to the definition of a seller's market if you're joining the real estate market in the first half of 2022. 

Inventory is low, especially for reasonably priced houses, and many sellers have been taking advantage of competitive bidding, waived home inspection requirements, and all-cash offers. 

Redfin data from March 2022 shows that more than 50% of houses sold for more than their asking price. 

Lucky you if you're selling your home. However, prepare for a bumpy ride if you're buying a house.

Last but not least, it can take a lot of time to evaluate all of these signs, especially if you don't have much industry understanding. In this situation, speaking with a knowledgeable local real estate agent is your best option. 

Researched and authored by Charbel Yammine | LinkedIn

Reviewed and edited by James Fazeli-Sinaki | LinkedIn

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