The economic principles of supply and demand play a prevailing role within the real estate industry. Ever-changing dynamics are frequently unsettled, sometimes favoring sellers and sometimes favoring buyers. As expected, home valuation strategies have strong connections to a real estate market’s performance; understanding market conditions is key to making informed decisions when choosing to either sell or purchase a home.
A real estate market favoring sellers comes to pass when the demand for housing exceeds available inventories. Conversely, a market favoring buyers occurs when inventories exceed demand. Where seller’s markets, are characterized by an abundance of homebuyers seeking to purchase in markets possessing a limited supply of homes, buyer’s markets are characterized by an abundance of homes but fewer buyers. For sellers, the most opportune time to list is when home inventories are low; for buyers, the most opportune time to purchase is when inventories are high.
In seller’s markets, homes are usually listed for shorter periods of time, generally selling for higher prices. Buyers are often forced to compete given the limited supply of homes available. Bidding competitions are commonplace, occasionally resulting in properties being sold above list price. Conversely, in buyer’s markets, homes tend to remain up for sale longer and sellers are then forced to compete to attract buyers. Periodic price reductions are commonplace in these markets in effort to entice buyer interest.
In real estate, it’s never easy to sell high and buy low. Whether the marketplace favors sellers or buyers, it’s not uncommon to benefit on one side of the transaction, while having to overcome challenges on the other. Rarely are their opportunities to experience the upside of both markets, unless a seller-turned-buyer is willing to sell at the height of one market and then wait to purchase at the height of the other.
National, state and local economic considerations have a profound influence on housing demand. A vibrant economy with plentiful homebuyers can quickly lead to a shortage of homes for sale. In these markets prices progressively increase, while competition for the limited supply available remains fervent. First-time homebuyers are usually the first to struggle in these markets, as competition for low-to-mid priced homes is often high.
When purchasing in a seller’s market, buyers should have well-defined expectations. If a home fitting those needs is found, they must be prepared to act quickly, often foregoing the urge to submit lower priced offers. Buyers in competitive markets shouldn’t overanalyze purchase prices; instead, they should focus on submitting their best offer. As to be expected, multiple offer situations are commonplace; to compete, buyers must position themselves to have the strongest offer.
Accompanying an offer with a loan preapproval is vital; however, it may also prove beneficial to provide a strong earnest money deposit. Further, an offer free of contingencies has better odds of being accepted. To that end, in seller’s markets, buyers shouldn’t presume the seller will pay all the closing costs nor should they make unrealistic demands about the inclusion of appliances or personal property. In these environments, the goal is to submit a clean offer.
As a point of consideration, the most attractive offers are frequently those that not only meet a seller’s financial expectations but also their personal needs. To ensure an offer is palatable, a buyer’s agent should reach out to the seller’s agent; beyond price, gaining insight into a seller’s motivation is often key to crafting a compelling offer that’ll be accepted.
On the opposite side, abundant listings but fewer homebuyers, evokes a completely different dynamic. When economic conditions are sluggish, with fewer buyers present in the marketplace, sellers are typically forced to compete against one another. The successful positioning of a listed home in a buyer’s market requires strategic pricing, detailed descriptions, professional photographs and advertisement.
Overpriced homes in buyer’s markets, usually fail to evoke interest and in the end, routinely sell for less than what otherwise might have been attainable had they been priced appropriately from the onset. In addition, recurring costs associated with home ownership also continue. So, appropriate pricing not only serves to competitively position the home to attract buyers, but also reduces the amount of time a seller is obligated to pay expenses on a home they’ve chosen to sell.
A seller’s competitive advantage is improved if their home has been cleaned and staged. To further attract buyers, sellers may also consider paying a portion of a buyer’s closing costs, offer to include appliances, allow for flexibility on closing dates and openly discuss contractual terms. While a reduction in price may be appealing, other concessions sometimes heighten interest.
Sellers mustn’t forget, given today’s technological advances, buyers are well-attuned to a home’s performance while on the market. They’re likely to deduct that a home which has been up for sale for an extended period may indicate a seller’s readiness to accept a lower offer. Sellers shouldn’t view this as a negative as negotiations are vital in a buyer’s market. Rather, they’re encouraged to keep discussions progressing in effort to achieve acceptable terms.
Whether selling or buying, choosing a real estate professional well-versed in the dynamics of supply and demand is important. As the market is evolving, seasoned practitioners possess the experience necessary to help both sides make informed decisions.