It's been a crazy couple of years in the real estate market. We've seen just about every type of market just in the last 10 years alone.
Understanding the type of market you're shopping for your new home in is vital for a couple of different reasons.
First, and most importantly, the market type helps determine your offer price once you find a home you love. See, in a sellers market you'll likely be making a full or close to full price offer. The reason is very simple. In a sellers market there are more buyers than there are homes for sale. In fact, you may actually end up in a bidding war if the home has just come on the market. If you write an unattractive offer it will likely be rejected because the seller has the luxury of a surplus of buyers. The seller's decision is pretty simple. Next!
On the flipside, in a buyers market the negotiating power has shifted to you. You can leverage an offer to better fit your terms. This doesn't mean to make a ridiculously low offer and risk insulting the seller, thus losing the chance at the home. It just means that you can offer less than asking price, ask for a home warranty, maybe a few other extras etc... If the seller isn't willing to bend a little then they risk losing an opportunity to sell you their house. And they know it might be another month or more before they even get another showing, much less an offer.
Let me give you a simple formula for figuring what type of market you're shopping for a home in.
- In a normal market, the average housing inventory would be about 6 months. This means that you have enough houses to sell to the current amount of buyers for the next 6 months without listing another property.
- In a seller's market, the average housing inventory would be less than 6 months. This helps drive home prices up as the law of supply and demand is applied. Simply put, the greater demand and the lower supply means that a seller can command a greater price for their home.
- In a buyer's market, the average housing inventory is greater than 6 months. Now the supply of homes is greater than the demand, shifting the negotiating power to the buyer.
We're currently in the heat of a buyer's market. For example, I recently did a check on available homes in the Maryville area. The available home inventory was 81 homes for sale
. The average number of sales was 9 per month. Divide 81 by 9 and you get a supply of homes for the next 9 months without listing another property. Remember, above 6 months = buyer's market. Make sense?
I hope that you enjoyed this tip. Watch for next week's tip "Understand What You Want vs. Need In Your Next Home". And as always, please feel free to call or e-mail if you have any questions.
Have a wonderful day!