Real Estate: What is a Seller’s Market?

If you’re considering selling your home, you’ll need to know more about current market conditions to determine the list price, set realistic expectations for how long your home will take to sell, and what renovations and repairs you should do before listing.  Generally speaking, listing your home in a seller’s market will allow you to sell faster for more money.  Sounds great, right?  But what is a seller’s market in real estate?   The absorption rate, median days to contract, and the average sales price are some important statistics that will help you determine whether or not current conditions point to a seller’s market.

Indicators of a Seller’s Market in Real Estate

Absorption Rate

First, you will want to take a look at the absorption rate.  The absorption rate in real estate is the rate at which listed homes in a given market will sell over a defined time frame. The absorption rate will help you to determine how long it should take for your home to sell, but it also reveals important clues about the overall market conditions.  An absorption rate above 20% indicates a seller’s market.  A rate between 15 and 20 percent is considered to be a balanced market, and a rate below 15% is a buyer’s market.  Be sure to discuss the absorption rate in your market with your agent during the listing presentation so that you will have clear expectations for your sale and can plan accordingly.

Median Days to Contract

Second, look at the median days to contract in your neighborhood.  This is another important clue that will tell you how long it will take for your home to sell.  Be careful here as improperly priced listings can skew this number dramatically.  If it takes 30 days on average for a property to go under contract in your neighborhood and there is a listing that has been on the market for 200 days, this is an indication that the property is either overpriced or has some serious flaws.  If your property sits on the market significantly longer than the average days on the market, you will want to revisit the list price.

Average Sales Price

Third, you’ll want to look at the average sales price over the last 6 months to a year.  Are prices going up or down?  This is directly related to housing inventory. The law of supply and demand states that if there is a limited supply, prices tend to increase. If buyers don’t have many options to choose from, you can expect to receive multiple offers which will result in a bidding war.  The key to sparking a bidding war is to price your property right at market value.  Even if buyer demand warrants a higher list price, pricing your home at market value will spark greater interest and will result in more offers.  Once you collect multiple offers, you can ask buyers to submit their highest and best offers which usually produces offers above the asking price.

Should I Renovate Before Listing in a Seller’s Market?

If the current market statistics point to a seller’s market, you might want to think twice before doing any costly renovations in preparation for selling your home.  Remember that markets fluctuate.  A shift to a buyer’s market can happen pretty quickly.  Taking too long to list can cut into your net profit.  Furthermore, not all renovations pay off at resale.  Just because a renovation costs you $40,000 does not mean that you can increase the list price by this amount.  Look at the standards in the neighborhood and make sure that you don’t over-improve the property.

If you are curious about your market value and would like more information about your neighborhood statistics, don’t hesitate to reach out to us at 561.560.9995 or visit the Home Valuation tab at Real-ativity.com for a free comparative market analysis.