What Exactly Does an Extreme Seller's Market mean?

You've heard it everywhere from every real estate agent you've ever known. Inventory is low. We get that...there's not many homes for sale. But what exactly does it mean to be in an extreme seller's market?

A seller’s market = demand exceeds supply.

In other words, there are more buyers than homes actively for sale. Since there are fewer homes available, sellers are at a major advantage.

In a seller’s market, homes sell faster, and buyers most likely are competing with each other in order to score a property. This often means buyers are willing to spend more on a home than they would otherwise. Therefore, sellers can raise their asking prices, and buyers rarely have the power to negotiate and are more willing to accept properties as-is.

These conditions often lead to multiple offer situations which then could lead to bidding wars. During bidding wars, buyers will make competing offers and drive up the price, typically above what the seller initially asked for.

Tips For Buyers

Whenever there’s a limited supply of houses on the market and a high demand from buyers, time is of the essence.

Act fast.

If you find your dream home during a seller’s market, you need to move quickly, because chances are it is someone else's dream home also (or 50 other people). If you decide to wait and think over a house you know you want to buy, you may find that it’s no longer available by the time you wish to make an offer. You should get preapproved for a loan ahead of time, so your financing is in order when you need it.

Know you’re at a disadvantage.

When it comes to making an offer, keep in mind that you’re the one at a disadvantage. A seller’s market is not the time to try to push contingencies, concessions, specific closing dates or repairs. Focus your attention on what’s most important to you. If there are certain stipulations you want written into the contract, think hard about whether they’re worth losing the property over. If you can make an all-cash offer, you should. Sellers prefer buyers who are willing to pay in cash because they don’t have to worry about the deal falling through due to issues with financing.

Be patient.

If you find that you keep losing out on the homes you’re interested in, it’s crucial to be patient and not get discouraged. Many buyers end up suffering during a seller’s market because they get frustrated.

Don’t settle.

On the flip side, some buyers will end up making offers on homes they otherwise wouldn’t be interested in because they’re tired of losing out. Remember, buying any property is a huge investment. Don’t settle on a home just because you think you can win it.

Tips For Sellers

Price fairly.

Even though homes tend to sell for more money in a seller’s market, it still helps to price your home fairly. If you set your asking price at or slightly below fair market value, you’re likely to attract more interested buyers. Some sellers choose to list their homes for slightly less than the assessed value in order to encourage a bidding war.

Carefully consider offers.

It’s even more important during a seller’s market that you carefully review the offers you receive. Sellers are often so focused on choosing the highest offer that they fail to examine the financial strength of each buyer. Just because buyers say they’ll pay a certain amount for your home doesn’t guarantee they’ll actually be able to obtain those funds. Lenders will not allow buyers to borrow more than the assessed value of your home.

The last thing you want is to accept an unrealistic offer and be forced to put your home back on the market when the deal falls through. The longer your home is on the market, the more questionable it will seem to buyers, and the more power they will have when negotiating.

Ensure preapproval.

For any buyers who require financing, you should ensure that they have been preapproved for a loan. Preapproval requires that buyers’ finances and credit history are verified, making it far more likely they’ll ultimately be able to obtain a loan for a specific amount of money.

Be aware of contingencies.

Also, be on the lookout for offers that include contingencies. Offers that include stipulations, like mortgage contingencies, home sale contingencies, appraisal contingencies and inspection contingencies, enable buyers to back out of sales contracts if certain conditions aren’t met.