A buyers market is where the buyers have the upper hand and a seller's market is when sales are in favor for the seller, but how do you know what you're in and how to recognize each one?
In a seller's market, there are fewer homes on the market and more buyers out there looking to purchase, which means that home prices tend to go up because there's more competition among buyers. More buyers could mean that there's lower interest rates, higher employment rates, and legislation that makes it easier to buy a property.
In a buyers market, there's plenty of homes on the market and not as many buyers, making lowball offers more common and it's usually a great time for investors to purchase as they'll find a property on the lower end of the home value index.
When we're talking about a seller's market we have to also talk about the absorption rate. Absorption rate means how quickly all of the properties could be exhausted on the MLS or those properties that are for sale if no more listings hit the market today. A balanced market is about six months, meaning that if no more listings go for sale as of today it will take six months for all the properties to be sold. Of course, that's not the case and there are new listings every single day, but it gives us an idea of what market we are in. If the absorption rate is three months or lower, it's a seller's market and if the absorption rate is over 12 months, it's typically a buyers market.
So how do you determine the absorption rate? First, you need to figure out how many homes have closed in a particular market over a specific period of time. Then divide the number of homes by the number of months in that period. This gives a per month absorption rate. Then, divide the rate into the number of current listings and this will yield the month supply of homes.
It's important for agents to know this so that we can price your home correctly. Of course, you don't need to know this, that's what we are here for. We can help you determine whether it's a buyers or seller's market and price and stager home accordingly.
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