If you’ve ever bought or sold real estate, there’s a good chance that you may have heard the terms “seller’s market” and “buyer’s market.” However, although these phrases may sound like real estate buzz words used by agents, they are actually very important terms that everyone should know.
What Does The Term “Seller’s Market” Mean?
The term “seller’s market” refers to a real estate market in which the inventory of properties is lower than the buyer’s demand. A seller’s market often results in stiff competition between buyers and higher sales prices.
How Do You Know If You’re In A Seller’s Market?
To work out what type of market you are in, you calculate your area’s “absorption rate.” The absorption rate in a market indicates the rate at which available properties are sold during a specific period.
The per month absorption rate is the most commonly used method and tells you how many homes are purchased monthly. To calculate the per month absorption rate, you found out the number of homes sold in your area in a specific time frame and divided it by the number of months within that time frame. You can also reverse this method to find the current month’s estimated inventory supply, by dividing the number of homes for sale in your area, by the monthly absorption rate. If the inventory supply is lower than 6, you can assume that you’re in a seller’s market.
For example, if 1200 homes sold in your area in the past year, you would take the 1200 figure and divide it by the number of months (12) to find the absorption rate. In this instance, the absorption rate is 100, meaning 100 homes close each month.
To find how long it will take to sell the current inventory, you would divide the number of homes currently on the market by the absorption rate. For example, if there are 300 homes on the market, you would divide this number by 100. In this instance, it should take around three months to sell the current inventory, which means you’re in a seller’s market.
Buying a Home in a Sellers Market
Although purchasing a new home in a seller’s market can seem intimidating, it’s still possible to find affordable properties. Here are some important tips to make the process as smooth as possible.
Get A Pre-Approval From Your Lender
You have to be ready to move quickly if you want to buy a home in a seller’s market. Having your pre-approval letter ready to go can make a big difference in whether your offer is accepted. This is especially if there are multiple offers on a home. If you can prove you’ve started the lending process, you have the upper hand over other buyers who haven’t made a start.
Be Patient
Although a seller’s market moves quickly, it’s important not to make any hasty decisions. Be sure to carefully research any homes before you take the plunge and place an offer. A simple internet search can help you determine important aspects of a property, such as the nearby amenities, local crime rate, and school zone. Consider what is most important to you and what you’re willing to compromise on. Having a clear idea of your priorities can help you keep a cool head during your search.
Work With An Experienced Real Estate Agent
Working with a knowledgable buyers agent in a seller’s market can make a huge difference. As real estate agents are experts in their market, they can advise you on putting the best foot forward in your home search. In addition, an experienced real estate can help you secure the best deal possible — especially in a seller’s market.
