Real estate agents typically use fair market value to determine price.
What is a seller’s market?
Seller’s market is a real estate term, indicating that there are more real estate buyers in the market than there are sellers. When demand is higher than the supply, home prices increase, which benefits sellers.
During a seller’s market, buyers have little room to negotiate price because demand is high. Seller’s markets usually occur when the economy is good and there is low housing inventory available in the area. When this occurs, prices rise, more buyers offer non-contingent contracts, and buyers are less likely to ask sellers to make subsidies, such as paying points or closing costs.
A buyer’s market indicates there are more sellers available than buyers. Experts say the market absorption rate is a good indicator to tell if the current market is a buyer’s market or a seller’s market.
To calculate the absorption rate, divide the number of homes that sold in the month by the number of homes for sale at the end of the month. An absorption rate of 20 percent or higher is generally considered a seller’s market.
Seller’s market example
Susan and David are considering selling their home. They’ve noticed the real estate prices in the area have risen. The economy has picked up, and a major tech company in the area is expanding as it hires an additional 1,000 employees over the next year.
Susan calculates the absorption rate to determine whether it’s a buyer’s market or seller’s market. In the month of March, 125 homes in their city were sold. At the end of the month there were 570 homes for sale on the market.
Based on the numbers of homes that sold compared to the number of homes available in the area, the absorption rate is 21.9 percent. This is a seller’s market; it’s a good time for Susan and David to sell their home.