Selling an investment property is one of the most important decisions property investors will have to make. When a real estate investor lists his/her rental property on the market for sale, he/she aims to receive the highest profit possible. The chances of this happening are higher when the real estate market is a seller’s market. But, “What is a seller’s market?”, you may be asking.
Here, you’ll find information on what is a seller’s market, its signs, factors that cause it to occur, and what does it mean to both real estate sellers and buyers. So, without further ado, let’s jump right in!
What Is a Seller’s Market? – Definition
In real estate investing, a seller’s market is when there is more demand for real estate investment properties than the available supply. In other words, a seller’s market is when the number of real estate investors looking to buy investment properties outpaces the number of available investment properties for sale. On the other hand, the opposite of a real estate seller’s market is, of course, a buyer’s market, which is when there are more investment properties for sale than there are real estate investors looking to buy.
Related: Is the 2018 US Housing Market a Seller’s Market or a Buyer’s Market?
Now that the definition of what is a seller’s market has been covered, let’s move on to explaining the signs of a real estate seller’s market.
What Is a Seller’s Market? – What Are the Signs of a Seller’s Market?
One way to determine exactly when the market enters the “seller’s phase” is by looking at the ratio of sales to listings. When the ratio of sales to listings in a certain real estate market hits 55%-60% (or three sales for five listings), we say that this is a seller’s market. As for a buyer’s market, we recognize it by a ratio of less than 35% (or less than seven sales per every 20 listings). Other signs include:
What Is a Seller’s Market? – Low Inventory
When property investors consider selling an investment property in a certain real estate market and want to determine whether or not it is a seller’s market, the first thing they look at is the number of real estate properties and whether or not this number is increasing. Low inventory means there are not many investment properties for sale in the market. When this happens – accompanied by real estate buyer’s demand – real estate sellers have the upper hand, meaning it’s a seller’s market.
What Is a Seller’s Market? – Multiple Offers
The next sign is the number of offers for a single listing. To recognize a seller’s market, real estate sellers have to check listing services and see how many offers a single listing gets in the real estate market. What does it mean when many property investors are willing to buy a single listing? That’s right: it’s a seller’s market.
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What Is a Seller’s Market? – Decreased DOM (Days on Market)
This means for how many days a listing stays on the market for sale. In other words, are investment properties being sold quickly? If the answer is yes, then this is a sign of a seller’s market.
What Is a Seller’s Market? – Low Market Absorption Rate
The absorption rate determines how many months it would take to sell all listings at the current selling rate if no more investment properties were listed. Real estate experts have estimated that the normal absorption rate is about 6 months, meaning that it takes less than 6 months to sell all listings in a seller’s market and more than 6 months in a buyer’s market.
Related: How to Know the Time Has Come for Selling Your Investment Property
What Is a Seller’s Market? – Rising Prices
The good old laws of economics state that when demand is higher than supply, prices go up. In a real estate market where the number of investment properties for sale is less than the number of real estate investors looking to buy, you’ll notice that the prices of these investment prices are rising, thus, this would be a seller’s market.
What Is a Seller’s Market? – Factors That Cause a Seller’s Marker
Major factors that cause and further answer our question of what is a seller’s market are:
- Lower interest rates: This allows more property investors to qualify to buy a rental property.
- Population and job growth: These factors lead to more real estate buyers moving into the market.
- Government housing assistance programs.
What Is a Seller’s Market? – What Does It Mean for Sellers?
A seller’s market provides property investors who are looking to sell their investment properties with a great opportunity to make the most money possible! As this type of market is on the sellers’ side, property sellers have the chance to be more patient and selective in choosing the offer with the highest profit rather than jumping at the first offer.
Therefore, if you’re considering putting your rental property on the market for sale, you must do it at the first sign of a seller’s market. Don’t procrastinate until you find at the downside of the season.
What Is a Seller’s Market? – What Does It Mean for Buyers?
If you’re a buyer in a real estate seller’s market, you need to work fast to get the rental property you want. The best thing to do is to find a good realtor who will help you find the right investment property as soon as it hits the market, at the right price, and write a competitive offer.
Property buyers should also make sure to be pre-approved by a lender, in addition to having their down payment and closing costs secured so the seller will know right away that they’re capable of backing up their offer. These will help you stand out from all other buyers looking at the same rental property and give you a higher chance of getting the deal.
Related: How to Buy a Rental Property in a Seller’s Market
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What Is a Seller’s Market? – Final Words
So, now you know what is a seller’s market, the signs of it occurring, what causes it, and what it means for both sellers and buyers. If you’re a real estate investor looking to sell your rental property, conduct a real estate market analysis to determine whether or not it’s a good time to list your property for sale.
For more information on anything real estate – for both property investors looking to sell and those looking to buy an investment property – head over to Mashvisor’s Knowledge Center where you’ll find thousands of blogs, guides, and tips for a successful real estate investing. Sign up for Mashvisor to receive our blogs as soon as they get published to stay updated!