Have you ever heard the term "seller’s market"? That is the term used when real estate market conditions favor the seller over the buyer and are what we are currently experiencing in the real estate market, just ask anyone that has been trying to buy a home!

The real estate market is generally described as either a seller’s market, buyers market, or balanced market. Truth is, the market is very rarely balanced, but generally one of the other two market types. For the past decade the vast majority of the country has been in a seller’s market that has turned into a strong seller’s market over the past several months, but what exactly does that mean, and how does it impact you if you are planning on selling your home? Continue reading below, or watch the following video, to learn more.

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What is a Seller’s Market?

As mentioned above, a real estate market is usually defined as a sellers market, buyers market, or balanced market. The type of market is determined by the amount of available inventory. In real estate, inventory is the measure of the number of homes for sale in terms of months. Confusing right? Here's a simple way of looking at it. Let's assume there are currently 500 homes for sale in the area where you live. Let's also assume that homes are selling at a pace of 100 homes per month. At the current pace of sales, it would take 5 months for all homes on the market to sell. Therefore, the market would be described as having 5 months’ worth of inventory. This is obviously not a static number as new homes are being listed every day and the pace of sales changes from week to week, but I think you get the idea. It is also worth pointing out that the type of market you are in can not only vary from state to state, but zip code to zip code. It can also vary within the same market at different price points. Homes below $500,000 could be experiencing a seller’s market, but homes priced over $1,000,000 could be in a balanced market.

Having somewhere between 6 and 7 months’ worth of inventory is considered a balanced market. That doesn't mean that's how long it will take your house to sell, but is just a measurement of the number of homes for sale relative to the pace of sales overall. When you have less than 6 months supply the market is considered to be a seller’s market and more than 7 months supply would be defined as a buyers market. 

What type of market you are in and the impact on home prices follows the economic law of supply and demand. When you are in a seller’s market it means the demand for homes is higher than the supply and prices will increase. In a buyers market, the demand is lower than supply and prices will decline. The lower the amount of inventory the faster prices appreciate and vice-versa.

As of November, in Frisco prices are up 11.1% year-over-year and there is only a 0.8 month supply of homes. In neighboring Prosper, prices are up 18.1% year-over-year with a 0.7 month supply. Yes, less than a month! Definitely a strong seller’s market!

Selling Your Home in a Seller’s Market

Now that you know what a seller’s market is, what does it mean to you if planning on selling your home? 

Generally speaking, when we are in a seller’s market it means sellers have the upper hand when it comes to contract terms. The stronger the seller’s market, meaning the lower the inventory, the bigger the advantage sellers will have when negotiating the contract. To be clear, this doesn't mean that sellers will get everything they want and won't have to negotiate at all, but it does mean that sellers can hold a firmer line in negotiations. Sellers will generally not be as negotiable in terms of price, assuming the house was priced correctly to begin with, and are unlikely to agree to excessive concessions or extensive repair requests. Yes, you will still need to repair health and safety items, major problems, and anything called out by the appraiser, but asking for a cosmetic item that was clearly visible when a buyer viewed the property originally is most likely not going to fly!

As a seller, it's important to consider the overall contract terms and not just the price. For instance, you may have several buyers interested in your property and even receive multiple offers. If one of those offers is written for more than your list price it's easy to get really excited and want to jump on it with dollar signs in your eyes, but not so fast. Unless it's an all-cash offer your house is still going to have to appraise. If the buyer who wrote that offer is utilizing conventional financing, but only putting 5% down, unless they have the reserves to come out of pocket if the house doesn't appraise for the contract price, you are either going to have to reduce your price or run the risk of the deal falling apart and having to start all over again. Experience has shown me, in many cases, the second time you go under contract the terms are usually not as good as they would have been had you closed with the original buyer, not to mention the additional time and stress of having to go through inspections and appraisal all over again.

The Biggest Challenge

Assuming you are selling and staying local, the biggest challenge facing sellers is finding a home to move to. Many sellers are hesitant to put their home on the market without having found a replacement home first. That has caused a number of sellers to delay putting their home on the market which has only made the supply problem worse. There are options for dealing with this scenario. If you’d like to learn more about the options and discuss your future plans please feel free to Schedule a Call to discuss further.

Bottom Line

While sellers definitely have the upper hand in negotiations during a seller's market it doesn't mean that there won't be any negotiations at all. Sellers need to keep in mind that buyers are still focused on value and will be patient, time permitting, when searching for the right house. If your house has deferred maintenance items or just doesn't show well it's not going to sell in the shortest amount of time for the highest amount of money and might not sell at all unless you price it appropriately for its condition. Sellers also need to remember that if they become too inflexible during negotiations buyers will still walk away even under current market conditions.

Want to Know How Much Your Home Might be Worth in Today’s Market? CLICK HERE to Find Out Instantly!