What is a seller’s market?

The housing market is constantly in flux, and thanks to the market dynamics of supply and demand, it often tilts between favoring buyers or sellers. If you’re thinking about buying or selling a home, it’s important to understand the market dynamics that could affect your bottom line. 

While you might lean on the expertise of a real estate agent to guide you through the nittier and grittier aspects of buying or selling a home, the dual concepts of buyer’s and seller’s markets are crucial baseline knowledge that you need before kick-starting your journey.

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Table of contents

What is a seller’s market? What causes a seller’s market?4 Tips for sellers in a seller’s marketTips for Buyers in a Seller’s Market

What is a seller’s market?

In real estate, a seller’s market occurs when there are more interested home buyers than available properties on the market. In other words, the demand exceeds the supply, putting sellers at an advantage. 

An influx of buyers to a certain area or a decrease in the number of homes for sale could create a seller’s market. Both situations could also occur simultaneously.

Any of the following might signal a seller’s market: 

  • Properties sell quickly; time on market is low

  • Properties consistently sell above asking price 

  • Bidding wars among interested home buyers

When sellers are in control, buyers will double down to get their offer accepted. They submit offers quickly and must be willing to stretch to be competitive. Buyers in a seller’s market are also usually more willing to buy a home as is, rather than negotiating cost, terms, or repairs. Sellers, on the other hand, can be more picky with the offers that they accept, as they often have multiple offers on the home. 

An extreme seller’s market—when demand is so high and supply is so low that sellers are able to command dramatically inflated prices—can lead to what’s known as a housing bubble. 

A seller’s market is the inverse of a buyer’s market, which occurs when there are fewer buyers than there are houses for sale. 

What causes a seller’s market?

Many factors can contribute to a seller’s market. These include:

  • Low interest rates on mortgages.

  • Growth in the local job market.

  • Development limits imposed by local governments that keep supply low.

Consider the city of San Francisco as an example. As the technology sector has grown, people flocked to San Francisco to pursue high paying jobs. This created an influx of demand for housing. But local development laws limit the scope of new housing development, which keeps supply low. The two factors converged to create an extreme seller’s market in the city that has rarely relented. 

In 2020, the COVID-19 pandemic threatened to turn San Francisco’s seller’s market into a buyer’s market as young people left the city in favor of working remotely in less expensive housing markets. Instead, buyers took advantage of record-low mortgage rates to make offers on the limited number of homes on the market. Bidding wars commenced. In the Bay Area, an already competitive market, one home sold for double—or $1 million over—its asking price.

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4 Tips for sellers in a seller’s market

Being a seller in a seller’s market is a good feeling. But in order to work the market to your advantage, you should keep a few things in mind. 

  1. Put your best foot forward. Even though you can expect to see a lot of interest in your home, you shouldn’t slack on getting it into proper shape for interested buyers. This means that you should clean, organize, and present your property in the best possible light. Not only will this help drive a number of serious offers, it could also bump the offers up in price. 

  2. Price your home fairly. “Fairly” doesn’t mean the highest possible price that you could get for your home. In fact, homes priced below fair market value can end up in bidding wars, where multiple offers come in above asking price. 

  3. Vet your buyers. Your highest offer may not be your most qualified offer. Look beyond the numbers to properly vet potential buyers. Accepting an offer from an unqualified buyer could lead to deals falling apart down the line—when you’ve already shut the door on better buyers. And when buyers know that a deal fell through, they have leverage in negotiations with you.

  4. Be wary of contingencies. Conditions in offers such as appraisal and inspection contingencies can enable the buyer to back out of a contract more easily. You may want to opt for an offer with fewer contingencies.

Tips for Buyers in a Seller’s Market

Searching for a home in a seller’s market can be a daunting, exhausting, even disappointing process. It requires perseverance. To increase your chances of walking away with a great investment, keep a few things in mind. 

  1. Get pre-approved. Show sellers that you’re serious about buying by getting pre-approved for a mortgage.

  2. Move quickly. In a seller’s market, homes sell fast and often above asking price. Be prepared to make an offer if you find a home that you love. 

  3. Offer competitive terms. Remember: price isn’t everything. You can make your offer more competitive by offering good terms like fewer contingencies, quick closing, or more cash up front.

  4. Be patient, stay calm, and remain objective. First-time homebuyers are prone to get frustrated or discouraged if they make offers on homes and aren’t accepted. This might lead you to making offers on homes you don’t actually want, just so you can buy something. This can have devastating consequences, if you end up buying a home riddled with problems or that you have to sell before you’re ready. Only submit an offer if you’re sure that it is the home that you want and are willing to see out financially to the end.

Bungalow is the best way to invest and manage your real estate portfolio. We work with you to identify, purchase, fill, and manage residential properties—so that you can enjoy up to 20% more in rental income with a lot less stress. Learn more about Bungalow.

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