What is a "Sellers Market" in Real Estate Anyway?

There has been a lot of discussion surrounding the term “seller’s market” in Real Estate recently. Many of our friends, family, and clients are wondering what this term even means and the impact it has on the value of their homes. In this month’s blog, we will discuss the technical meaning of a “seller’s market” and how it impacts home values in general. A seller’s market is defined by a Real Estate Market in which people selling homes have the advantage due to a number of different variables. In our present case, it is due to a low supply of available houses and historically low interest rates.

The Basic Economics of a Sellers Market

First, a quick economics lesson. In economics (and in the real estate market which is a part of our economy) there is a concept called “supply and demand”. Supply is defined by the amount of something people want to buy (it could be anything) and demand is how badly people want or need to buy it. In our case, we are talking about the number of houses available for sale to potential buyers.

Supply and demand typically work opposite of each other. When supply goes up, demand tends to fall and as a result so do prices. When supply goes down, demand tends to rise and thus prices go up. Today we are experiencing a classic example of short supply in Real Estate.

When the supply of houses goes up, if there aren’t enough buyers (demand) to buy them all, the value of those houses would theoretically go down because there isn’t enough demand to drive the price up. Basically there would be too many houses and not enough people to buy them. So homes would sit on the market and prices would fall. That is basically what drove down home prices in 2009-2016.

Conversely, if there aren’t enough houses for all of the available buyers to purchase, demand goes up. As a result, the price of the homes goes up. So currently, in our housing market, available homes are scarce. Simply put, there are too many buyers, and not enough houses to go around. This is creating a situation where there are too many buyers for one house, and they are getting into bidding wars to buy the home they want – driving prices up.

So How Does This Create A “Sellers Market”?

As a result of a historic shortage of homes, coupled with an entirely new generation entering the housing market which had largely delayed buying homes until later in life (Millennials), we now have too many buyers and not enough houses. Sellers can use this situation to their advantage. If a seller has been sitting on the fence about selling their home – moving or downsizing – and has been waiting for the right time to sell, now is likely the time.

As a seller, your home is in historically high demand (according to the NAR study on housing shortages), and as a result home prices are going up. That means you can command a higher price for your home because there are SO MANY buyers trying to buy your home. In our experience listing homes here in MA & RI, we have recently been seeing lines down the street to see our listings, and have been getting multiple offers and bidding wars between buyers. Our most recently sold house had 12 offers WELL over the asking price in one weekend on the market.

A few of our clients were still on the fence about selling because they felt that they couldn’t find a new house because there aren’t enough houses to go around to begin with. This is a common misconception. Depending on your situation it might be easier to find another house than you think. Talk to your real estate professional, or call us, and get advice from a seasoned Realtor on strategies to help someone in your situation.

Its Easier Than You Think To Get A House With The Right Strategy

As a seller, you probably have a good amount of equity built up in your home. This puts you in a really strong position as a buyer, because cash offers are the strongest kind of offer a seller can get. That means you have a higher chance of an accepted offer on the next home you want. For some of our more recent clients, its worked out great. They wanted to offload the giant house they bought in the 1990’s & 2000’s and raised a family in, and downsized into smaller one level homes. The best part is, several used the cash equity they had from their sale to buy these houses at a lower price point than they were selling at. Some even got into a home, and had cash left to spare.

Caution! Lets Not Get Too Crazy

A word of advice to our sellers out there. Just because it is a sellers market, doesn’t mean you should pick some astronomically high listing price. The basic principles of supply and demand don’t outweigh the judgement of people and their Realtor advisers. What I mean is that you cant sell a $300,000 house for $800,000 just because it is a sellers market. I advise my clients to price their homes right at what the home is worth the day they list it. We do a ton of research on the homes we list for our clients including market research. We look for comparable homes that have sold, make adjustments based on location, lot, updates, etc., and then recommend the most likely sale price for the home at that point. If you price the home right in this market, you will attract a lot of buyers, and then the demand for the home will naturally drive up the sale price most of the time.

The biggest mistake you can make is overpricing a home in this market. If you do, you will turn off buyers before they ever come look at the house (if they even come) and it will sit on the market for a while. Often, when a house sits too long in this market, buyers begin to stigmatize the house thinking there is something wrong with it automatically. Even if that is not the case. We have a seen a bunch of cases where someone thought they would get more money by overpricing the house, when in reality with the current market conditions it works opposite.

The goal should be to price the home attractively to gain interest from the pool of buyers. Then your agent should implement their marketing strategy for your house, and get more attention from the buyer pool. The result, if everyone knows what they are doing and make the right decisions, should be a line of people down the street to see your house. And then the competition between buyers will naturally drive up the price.

Eric Coury – 2021

The Coury Team Realtors specialize in working with Sellers & Buyers in Massachusetts and Rhode Island.

**Disclosure: The views and opinions expressed in this blog are those of the author alone and do not represent the views or opinions of Keller Williams or any other party. The contents of this blog are not meant to be interpreted as individualized advice. Please consult your tax advisor, attorney, broker, and/or financial advisor for specifics on your situation. Copyright © Eric Coury, Colonial Classic Realty LLC