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Seller’s Market

A market characterized by an excess demand for a commodity

What is a Seller’s Market?

A seller’s market is a market where the demand for a product exceeds its supply. Generally, a seller’s market is characterized by a shortage of goods for sale, giving the seller the power to fix the price of commodities.

 

Seller's Market

 

A seller’s market is common in the real estate sector, where demand for housing exceeds the supply of homes. More buyers seek to purchase homes in a specific geographical location compared to the number of homes available for sale.

Such a scenario creates bidding wars where interested buyers offer competing prices to outshine the other buyers and acquire the property. A seller’s market gives sellers a stronger bargaining power, and they gain the upper hand in setting prices for the properties.

 

Summary

  • A seller’s market is characterized by an excess demand for a commodity, creating a shortage of commodities available for sale.
  • Due to the limited supply of the commodity, sellers have higher bargaining power, and they determine the selling price.
  • A seller’s market is common in the property sector, where the demand for housing exceeds the supply of properties available for sale.

 

Understanding Seller’s Market

A seller’s market is a market where sellers control the market because the demand for a product exceeds its supply. Such an imbalance puts the seller in an advantaged position to negotiate better deals from the multiple buyers interested in purchasing the commodity for sale.

In real estate, properties that are considered unique will generally stand a better chance to get favorable pricing. In this market, buyers are in a rush, and they need to make a decision quickly because another buyer might purchase the property if they take too long.

Various factors may drive the housing market to be a seller’s market. One of the reasons is the season. Generally, more homes are for sale during the summer than in winter because homeowners tend to dispose of their homes in the summer, creating a peak buying season. It means there will be fewer homes available for sale during the winter and a pool of interested buyers looking to acquire a home.

Another factor that may create a seller’s market is investment growth in a specific location. For example, cities with a growing population, higher employment, and a good business environment will demonstrate an increasing demand for housing against a limited supply of homes. Other factors that can affect the demand and supply of property include interest rates, legislative changes, and employment opportunities.

 

Key Signs of a Seller’s Market

 

1. Higher-priced homes

When there is a higher demand for housing, there will be bidding wars between the multiple buyers competing to acquire the property. It will give the sellers a stronger bargaining power, and they can fix higher prices for their homes. If the homes on sale in a particular market have a higher price tag than the previous period, it signifies a seller’s market.

 

2. Quick home sales

Due to the higher demand for property and limited supply of properties in a specific area, homes tend to sell faster in a seller’s market than in a buyer’s market. The unique homes will attract the most attention and sell first, while the regular homes will also sell because buyers do not have a variety to choose from. The speed at which a home is sold when advertised may indicate whether it is a seller’s or buyer’s market.

 

3. Few homes for sale

In a market where there is more demand than supply, it means that there will be fewer homes for sale at any one time. In a seller’s market, homes tend to sell faster, leaving a limited number of houses available for sale. To determine if the market is a seller’s market, compare the number of homes available for sale to the number of homes sold in the previous month.

 

4. Bidding wars

Bidding wars occur when buyers present competing offers to the seller for a single property. The buyers try to outbid each other by increasing their offer price gradually to achieve the price set by the seller.

 

Seller’s Market vs. Buyer’s Market

The opposite of a seller’s market is a buyer’s market, which is characterized by excess supply over demand. In a buyer’s market, potential buyers have a large pool of properties to choose from, and it is the sellers who have to convince the buyers why a specific property is right for them.

Although the market sets the price of properties, buyers enjoy more negotiating power, and they may force the seller to lower their asking price. Unlike in a seller’s market, where sellers set the prices, prices for properties in a buyer’s market are determined by market forces.

 

More Resources

CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Aggregate Supply and Demand
  • Demand Theory
  • Market Dynamics
  • Quality of Real Estate

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