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Definition of a Seller’s Market


If you’re shopping around for a home, you may be wondering whether this is a seller’s market, which favors homeowners over homebuyers. Let’s break down the characteristics of a seller’s market and what you need to look out for when buying a home. A financial advisor could help you put a financial plan together for your home buying needs and goals.

What Is a Seller’s Market?

The conditions in a seller’s market favor homeowners over homebuyers. In this market, prices are generally higher because a large number of buyers are driving up the demand with fewer homes available. This can trigger bidding wars and rising prices where competing homebuyers buy homes as-is.

Homebuyers in a seller’s market also tend to pay over asking prices for homes and inventory also tends to turn over very quickly.

For a comparison, there is a much more extensive inventory in a buyer’s market and a relatively small number of buyers. Prices during this market are also relatively lower as the supply of homes gives homebuyers many more choices to pick from.

Advantages of a Seller’s Market for Sellers

As a seller, there are three common advantages that could help you line your pockets:

Plenty of buyers. With a large number of buyers, it’s likely that more than one buyer will like your home to make an offer.

Bidding wars. When there aren’t enough houses to go around, it’s not uncommon for bidding wars to break out, driving up the price of your home.

Minimal pressure. As a seller in this market, you can wait for the right offer to come around. For example, if you don’t want to upgrade your space, then you can simply wait for a buyer who’s ready for a fixer-upper in this market.

Disadvantages of a Seller’s Market for Buyers

SmartAsset: Definition of a Seller's Market

Unfortunately, there aren’t any advantages of a seller’s market from a buyer’s point of view. Instead, there are three common disadvantages that can complicate the home buying process:

High competition. When you have a large number of buyers in the market, you’ll face steep competition for your home purchase. The pressure that comes with a crush of buyers includes the need for relatively fast decisions. Plus, with so many competing offers, you’ll likely get bid out of several homes before finding the right fit.

Home selection issues. In a seller’s market, many homes that hit the market need a bit of TLC. Make sure to get a home inspection to understand exactly what needs to be fixed.

Higher prices. The mismatch between housing demand and supply will push home prices higher. As prices rise, you can quickly find yourself priced out of your target neighborhoods.

How to Navigate a Seller’s Market as a Buyer

If you’re a buyer, a seller’s market can be a bit complicated to navigate. But it’s still possible to walk away from a tight market with your dream home. Here are five tips to help you navigate the process.

Map out your budget first. A home purchase is a major expense. It’s important to decide exactly how much you are comfortable spending before jumping into the market. Consider how much you’ve saved for a down payment, your monthly income and expenses to arrive at a number that works for your situation. Don’t spend more than you can afford!

Get a mortgage pre-approval. A mortgage pre-approval lets sellers know that you have a lender ready to facilitate the sale.

Move quickly. When a home that fits your criteria hits the market, act quickly! Although you might want to sleep on it, that delay could cost you the home you’ve been searching for.

Limit contingencies. Although you shouldn’t waive your inspection contingency, it’s smart to limit other contingencies. Sellers are looking for a smooth deal that will make it to closing.

Don’t settle on a home that doesn’t work for your needs. Even though it’s tempting to just get into a home, this major purchase warrants waiting for a home that meets your functionality requirements.

Bottom Line

SmartAsset: Definition of a Seller's Market

If you’re buying a home, it’s a good idea to understand whether you’re in a buyer’s market or seller’s market. A good sense of the market conditions will help you craft an appropriate offer and successfully navigate negotiations. Although you can’t always avoid buying in a seller’s market, knowing where you stand in the field of buyers is helpful.

Home Buying Tips

  • As a potential homebuyer, determining how much you should spend on a home is a big question. A financial advisor can walk you through the process. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now. 
  • Homeownership is a big expense. SmartAsset’s Home Buying Guide can help you find more information for this life-changing process.

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