In real estate investing, selling an investment property is a very important decision in a real estate investor’s career. After buying and owning an investment property, the only reason you should be selling it is to make the highest profit possible. However, the chances of this happening are only possible if you’re in a real estate seller’s market.
In this article, we’re discussing what exactly a seller’s market is, what causes it, and most importantly, the signs that property investors should keep an eye out for to recognize that a real estate seller’s market is approaching. So, without further ado, let’s jump right in!
What Is a Real Estate Seller’s Market?
In the simplest terms, a real estate seller’s market is when the demand for real estate investment properties is higher than the available supply. In other words, during a real estate seller’s market, the number of property investors looking for investment properties to buy outpaces the number of available investment properties that are on the housing market for sale. The opposite of a real estate seller’s market is, of course, a buyer’s market in which the available supply of investment properties for sale is higher than the number of real estate investors or homebuyers looking to make a purchase.
Related: Is the 2018 US Housing Market a Seller’s Market or a Buyer’s Market?
There are many reasons that cause a real estate seller’s market, most importantly lower interest rates, which attract more property investors to buy an investment property. Other causes of a real estate seller’s market are population and job growth (this increases the number of buyers in the housing market) and government housing assistance programs which make more property investors qualified to buy an investment property.
Now that the definition of a real estate seller’s market is covered, let’s move on to explaining the four major signs that this type of market is approaching!
Signs of a Real Estate Seller’s Market
Real Estate Seller’s Market: Lower Months of Inventory
Out of all the signs in this guide, months of inventory (sometimes also called the absorption rate) is the most accurate and most important predictor. Basically, months of inventory allows a real estate investor to determine how many months it takes to sell all listings in a certain housing market at the current selling rate if no more investment properties were listed.
Real estate experts have estimated that the average months of inventory is about 6 months. Thus, when the amount of inventory begins to decline from 6 months (meaning it would take less than 6 months to sell all property listings), then you’re in a real estate seller’s market! On the other hand, if you’re in a housing market with months of inventory of more than 6 months, then you’re in a buyer’s market.
One important point to keep in mind, however, is that when a real estate investor is tracking how much inventory is available, he/she should do it by specific area and price. Why? Well, it could be that the same market is experiencing a real estate seller’s market in the lower price ranges and, at the same time, having a real estate buyer’s market in the upper price range.
Related: Restore Your Rental Property After Fire Damage
Real Estate Seller’s Market: Decreased Days on Market (DOM)
Days on market means for how long a single investment property listing stays on the market for sale, or, in another words, how long it takes until it’s sold. This is a quick way to spot market shifts. Property investors should check this number at least once a month. When you start to notice that days on market is starting to drop dramatically, you’ll know that a real estate seller’s market is approaching! A decrease in days on market is closely related to fewer months of inventory – investment properties are being sold quickly, thus it’s a real estate seller’s market.
Real Estate Seller’s Market: Multiple Offers
Another hallmark of a real estate seller’s market is multiple offers. If you’re a real estate investor thinking of buying a certain investment property, and you notice that the seller obtained a number of offers for this single listing (demand is higher than available supply), this means you’re in a real estate seller’s market. Therefore, property investors should check listing services and take note when they start seeing multiple offers for a single investment property as this is a major sign that a real estate seller’s market is approaching.
Looking for an investment property to buy? Use Mashvisor’s investment property calculator to find and analyze thousands of investment properties for sale in the US housing market. Click here to start your search!
Real Estate Seller’s Market: Rising Prices
All the above-mentioned signs lead to our final hallmark of a real estate seller’s market, and that is rising prices for investment properties. As multiple offers increase, and days on market decrease, a savvy real estate investor will start to notice that investment properties’ prices will start to increase. This is simply the good old law of economics: higher demand = higher prices. Consequently, when properties are selling at close to asking price or more, your real estate seller’s market has arrived.
What Should Sellers and Buyers Do in a Real Estate Seller’s Market?
Judging by its name, this type of market is on the seller’s side. It gives property sellers the opportunity to be selective and choose whichever offer makes the highest profit when selling investment properties! Thus, if you’re a real estate investor considering listing your investment property on the housing market for sale, you must do it at the first sign of a real estate seller’s market.
Related: Your Guide to Selling Real Estate Investment Properties
If you think the time has come to sell your property, it doesn’t hurt to have some extra help even in a seller’s market. Read Real Estate Yard Signs: 9 Design Trends & Insights for 2018 by The Close to get some ideas how to market your property.
Buyers in a real estate seller’s market, on the other hand, need to work fast to get the investment property they want. If you’re looking to buy an investment property while in a real estate seller’s market, your best chances are to offer a high price in order to stand out from all the other competitors eyeing the same investment property! The best thing a buyer could do is find a good real estate agent to find the right investment property as soon as it hits the market, at the right price, and write a competitive offer.
Related: How to Buy a Rental Property in a Seller’s Market
Top US Real Estate Seller’s Markets
Below is a list of US cities which are considered real estate seller’s markets:
- San Francisco, California
- San Jose, California
- Seattle, Washington
- Portland, Oregon
- Dallas, Texas
If you’re looking to buy investment properties in any of these markets – along with their data, analytics, and best neighborhoods – head over to Mashvisor and type in the name of the city that you’re interested in.
Real Estate Seller’s Market – The Bottom Line
If you’re a real estate investor looking to sell your investment property, keep an eye out for the above-mentioned signs to determine whether or not it’s a good time to list your property for sale. On the other hand, if you’re looking to buy an investment property, click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice!
For more information on anything real estate – for both property investors looking to sell and those looking to buy an investment property – continue reading our blog.