The question is best answered with an example. A hypothetical buyer looks at 24 homes in a strong buyers market.* The market includes eight months of inventory, meaning three of the 24 homes will sell this month. Of the 24 homes, six are of good quality and condition, six are poor quality, and 12 have potential. Two of the six good ones and one of the 12 potentials are priced very competitively and are the three that will sell.
Our buyer recognizes the three as the best available opportunities and decides to offer on one. The other buyers looking in our market also choose these three homes to focus and offer on. The three properties attract multiple offers, and the others are ignored. As a result, the three sell at or above their list (asking) price.
This is a fairly typical scenario. Buyers of any product or service seek quality and value. In the following month, some new homes will come on the market and some will reduce their prices. The three perceived by the market as the best quality and value will sell. There are exceptions to the rule and some buyers will occasionally choose to offer on one of the other properties and buy at a discount. So although we can sometimes buy homes that we don't want at a discount, we usually have to make a strong offer and pay a good price for the ones we want. Even within a buyers market, it's a sellers market for some homes.
*It is generally agreed that a balanced real estate market includes about four to six months of inventory of homes for sale. A smaller inventory would be considered a sellers market and a larger inventory would be a buyers market.
Pat Paulson,
May 8, 2010
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