The market for goods and services is fueled by supply and demand. An indicator studied in the real estate market is the demand for homes. An abundance of buyers, or a slow-down in buying, reflects on how easy or difficult it will be to sell your home, and at what price. Measure your market before listing your house to understand your home’s salability in current conditions.
Large Demand/Large Inventory
Before the housing market crash of the mid-2000s, an abundance of homes were built to satisfy the increasing demand. Newly built neighborhoods sprang up and buyers stood in line or drew lottery tickets to compete for these properties. This is an example of large demand/large inventory, fueled by easy mortgage loan qualifying, 100 percent financing, and investors crowding the market looking to “flip” the homes for a profit. Selling in this type of market means pricing your home at the top end and anticipating a quick closing.
Large Demand/Low Inventory
When a large demand for property exists but there’s low inventory, it’s known as a seller’s market -- the seller is in control and there’s little room for negotiation in pricing. Often, multiple offers are presented and the seller walks away with more than the listing price. When you’re in a seller’s market, price your home near the top of the comparables you’ve studied. Analyze all offers for strength, with a large down payment, mortgage pre-approval, and limited financing contingencies adding weight to an offer.
Low Demand/Large Inventory
As the number of homes sold as short sales and foreclosures flooded the market and most buyers stayed out of real estate, a buyer’s market came into existence. Competing with an abundance of homes on the market and trying to get a buyer from a small pool, you have to market your home differently than if it were a seller’s market. Make the home as appealing as possible, keep the price at the lower end of the comparables, offer incentives to agents and buyers, and do everything you can to lure a buyer. Your net result will be a lower selling price and a longer time on the market.
Low Demand/Low Inventory
Once the buyers go away and homes are taken off the market, the rule of supply and demand begins to level off. A few buyers looking at the few homes available means you can set your price at a fair market rate, based on comparables, and expect to get at or near your price. It will take longer to sell, and you may have to compromise on buyer incentives, but your pricing will reflect the reality of the market.
- Monterey County Weekly: Supply and Demand; Low Real-Estate Inventory, Booming Demand Push Monterey County Home Prices Up
- The Houston Chronicle: Chron.com: Local Home Market Teaches Lessons on Supply and Demand
- Southern California Public Radio: The Breakdown; Supply and Demand Imbalance Continues to Distort Real Estate Markets
- Washingtonian: Real Estate; Seller’s Market
- Waldorf Home Solutions: Salability Verses Value
- The Truth About Realty: Factors that Determine Real Estate Value
- Stewart Sutton/Photodisc/Getty Images