It is always a sellers' market in real estate, and it is important to know this whether you are buying or selling real estate. This is a fact that is often missed by people who want to buy a home, as well as by sellers who want to sell a home.
If you have been paying attention to the housing market at all, then you know there is a nationwide glut of homes for sale. Both the National Association of Homebuilders and the National Association of REALTORS like to gloss over this fact, but the truth is we over-built in most areas around the country and it will take growth at each and every local level to consume the excess inventory of homes.
We know that when trying to sell any commodity, when supply is far higher than the rate of demand, pricing pressure ensues and values drop until more buyers are drawn to the values available. Knowing this, you might be surprised when I accurately and confidently state that
Real Estate Is Always A Sellers' Market
But it is true. And if this something you don't understand, you should read on.
Homes Are Unique
The great thing about owning a home is knowing that it is not exactly like any other on the planet. Our homes are unique, as our individual touches make them special to us and our families. Because of this, there is no "shelf" to display them upon when it is time to sell them, and the value of the home will be based upon what similar homes can be purchased for at that specific moment in time.
Homes Are A Necessity
The one thing for sure is that our society has no desire to move back into caves. I am fairly confident that real estate will be a recognized commodity for the remainder of my life, and well into the future. People need a home, so there will always be some level of demand for housing. So why do some reports say "now is the time to buy" and yet others say "be cautious, this is a buyers market?"
Understanding The Difference Between "The Housing Market" and "Your Housing Market"
This is a point lost on many real estate consumers, and unfortunately even misunderstood by many real estate "professionals." There is a housing market that is larger than any one person, and we can study this market, identify current supply and demand relationships, and then determine whether or not the housing market is currently in a buyers' market or a sellers' market.
But what we cannot do is conclude that this market influence has ultimate control over the saleability of a specific home. You see, ultimately, the seller gets to decide his or her asking price, and this alone will determine whether or not that seller is priced to be in a sellers' market or a buyers' market. To fully understand this, let's look at a specific example.
Home Owners Can Choose To Be In A Sellers Market
Let's say there is a home for sale that is worth roughly between $150K and $200K, but more accurately closer to the $200K level. The homeowner decides to sell the home and must determine an asking price. Here are some thoughts based upon our current market conditions where there are a glut of homes for sale:
Asking Price $210K - This home seller "doesn't want to leave any money on the table" so he asks an amount that leaves room for negotiation. By pricing it here, the seller has made many homes on the market appear more attractive than his, and thus he has placed himself in a buyers' market. Prospective home buyers get to choose whether or not they want to look at his home and whether or not they want to make an offer. There is no fear that they will "miss out" on this home, as everybody knows it is a buyers' market and this home (at the current price) is easily replaceable.
Asking Price $195K- This home seller has priced the home for roughly what is appears to be worth. Unfortunately, with over a year's supply of homes on the market, that does not mean a buyer is going to feel compelled to make an offer today. If this home sells, there are hundreds that can replace it, so buyers still have the edge (because we all know that it is a buyers' market, right?).
- Asking Price $180K- This home seller has priced the home for less than it is worth. He knows that there is only 1 home in every price range "that is a steal," and thus he has made his own private market a sellers' market. He can motivate buyers to act today, because they know what is available and this is absolutely the best deal out there. If the seller is too low, the competition among buyers will often times bid the home right back up to what it is worth (if it doesn't, what is it really worth?).
Home Buyers Better Understand What Type Of Market There Is For Each Specific Home
Understanding that buyers have tons of homes to view often makes them think they need to use the same offer strategy for each and every home. But using the example from above, home buyers do not want to approach each home the same way.
The first home requires some study to determine what the home is really worth, the second home will require a little negotiation, but the third home requires responsiveness. It will sell today, and if a buyer wants the home, a "full price plus" offer is what it is going to take to purchase the home.
The biggest mistake made by buyers today is trying to negotiate with a well-priced seller. While there are not many sellers doing this correctly, the ones that are have complete control of the process of selling their home. I have seen buyers fall in love with homes that are priced below all competition but make a low-ball offer, then they get upset when the seller sells the home to somebody else. Think about it...
Home sellers who price competitively will use a low offer to get a higher bid from another buyer. Don't make an offer that they will say "no" to. If you are looking to buy a short sale or foreclosure, and you think you can steal it, you might be right. But the "steal" level is easily determinable by a real estate professional who understands the market inside and out, and if you offer below that amount, you will not get the house.
Moral Of The Story
If a home seller is asking too much money, they most likely will not sell due to conditions in real estate right now (see home sales failures). But if they are priced to sell, they will sell at or above their asking price. They can and do create favorable conditions to sell a home, so sellers should employ this as their pricing strategy and buyers need to recognize a deal when the see it. They are few and far between, but if you snooze, you lose!
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.