How to Know When It’s a Seller’s Market

Did you know that, in the third quarter of 2022, the U.S. homeownership rate stood at 66%? That’s not much different from the previous quarter, though, when the rate was only 65.8%.

One reason for such an unimpressive change is that home prices have been going through the roof. For instance, in Q3 2022, the median sales price reached a whopping $454,900. That’s a staggering $43,700 higher than the same quarter of the previous year.

Those skyrocketing home prices, in turn, prove that the U.S. is currently in the seller’s market. And as a home seller, you should take advantage of this to maximize your profit.

But how and when exactly does a seller’s market arise?

We’ll tell you all the answers to that question below, so read on.

Low Real Estate Inventory

A seller’s market happens when the demand for houses exceeds the supply. This results from a low real estate market inventory; in other words, there are too few houses.

That lack of supply increases the competition between buyers. After all, if they don’t act fast, they risk missing out on a property they’re eyeing. Thus, house shoppers have no choice but to spend more on purchasing a home.

That gives sellers an advantage, allowing them to raise their asking prices.

Housing market supply shortages also usually result in bidding wars. This is when buyers try to outprice others by making higher offers. As a result, the sales price of homes in a seller’s market is often higher than their initial asking price.

All that describes what the U.S. is currently experiencing. It’s in a seller’s market, considering it’s at least 3.8 million homes short. Los Angeles, California, alone lacks around 400,000 houses to meet its housing needs.

Underproduction and zoning restrictions are, in turn, top contributors to such shortages.

So as someone selling a home, you’re at an advantage and have more negotiating power than buyers. However, that doesn’t mean you should no longer learn how to sell your house for top dollar.

Even in a seller’s market, you can still maximize profits by cleaning and organizing your home. Repairing plumbing, roofing, and electrical systems can also help drive its price.

Finally, when listing a home, set the asking price at or slightly less than the fair market value. A reasonable listing price is one of the most effective ways to attract buyers in droves. It can encourage a bidding war, so you’re still likely to emerge as the winner.

Upward Movement of Sales Prices

Asking prices almost always trend higher in a seller’s market. Likewise, they usually exceed the seller’s initial asking price.

You can check for price patterns and histories through reputable real estate websites.

To use such sites, start by limiting your search location to a half-mile radius within your house. Then, pull information on previously listed homes comparable to yours. In real estate terms, such properties are what you refer to as “comps.”

Real estate comps are homes similar to yours in location, condition, age, lot size, and room number. For example, let’s say your well-maintained, 3-bedroom, 2-bath house is on a 2-acre lot in Palo Alto. In this case, you’d want to look for comps boasting all the same characteristics.

However, just as crucial is to stick to comps sold within the last three months. Most appraisers consider anything older than that as non-comparable.

Next, check each comp’s original listing price and final sales price.

Do the math to confirm if there’s an increase or decrease in the actual sales price. You’re likely in a seller’s market if it’s the former.

Alternatively, you can hire a real estate agent to do most of the legwork and research on your behalf. They can help you with your home’s accurate valuation and finalize its sale. Just prepare to pay them a commission, which, on average, is 5% to 6% of a home’s sale price.

Shorter Time on the Market

Finding out how long houses for sale sit on the market is another way to determine if you’re in a seller’s market.

In a seller’s market, homes typically sell way faster than average. This, once again, has to do with buyers’ limited housing options. Since they’re at risk of losing to another buyer, they can’t afford to take too long to decide if they want to buy.

By contrast, selling in a buyer’s market results in houses sitting on the market longer. In this scenario, more homes are for sale, so buyers usually want to compare their options. This process takes time, sometimes several months.

Trend Reports Point to a Seller’s Market

Market trend reports provide analyses of current property market values. For example, they contain information about home prices sold weekly or monthly. Most also have charts showing just how much prices are dipping or swelling.

Such reports also provide educated predictions of how the market may fare in the short and long term. Thus, they can help you gauge whether it’ll be a buyer’s vs. seller’s market in the next few months.

Market trend reports are widely available online, including from the following sources:

  • National Association of Realtors (NAR)
  • Zillow
  • Realtor

Reports from those sites usually get published on other news sites. This makes it easy to stay abreast of the latest news, but ensure the ones you read are relevant to your location.

Take Advantage of the Current Seller’s Market

Now that you know how and when a seller’s market occurs, it’s time to prep your home for sale. After all, the U.S. real estate industry is currently in one.

However, experts forecast home prices to moderate and normalize this 2023. Therefore, if you wait too long to sell, you may miss out on buyers who would have otherwise made better offers. That should be a good enough reason to make you consider selling ASAP.

For more exciting and informative guides like this, check out our latest news and blog posts!