Seller’s Market: What it Means and How You Can Take Advantage of It

Key Takeaways

• Houses sell faster in a seller’s market, spurring competition, or “bidding wars,” among would-be buyers because of the low supply to demand.

• A seller’s market generally takes place in an environment in which houses sell faster and buyers are forced to compete for the property they seek.

• Frequently, sellers are so focused on snagging the highest offer that they neglect to properly consider each buyer’s finances and end up having to relist the property when the deal collapses.

It is essential for investors of real estate and those seeking to enter the market to not only recognize when they are in a seller’s market, but how buyers as well as sellers should strategize once one. They should also understand the factors that drive a seller’s market, so that they can invest their capital accordingly.

What is a Seller’s Market?

In essence, a seller’s market is a condition that occurs when demand outstrips supply. In other words, such a market arises when there is an abundance of interested buyers, but inventory is low. The market gives the seller the edge. 

By contrast, a buyer’s market is when supply exceeds demand.

Characteristics of a Seller’s Market

A seller’s market generally takes place in an environment in which houses sell faster and buyers are forced to compete for the property they seek. Such competitive bidding generally takes place amid rising home prices and a low-supply environment. 

Factors that Drive a Seller’s Market

There are factors that tend to drive a seller’s market, including low interest rates, which usually boosts demand, driving up home prices.  

Population growth is also a factor in the formation of a seller’s market. Such growth — especially an increase in the number of households — can lead to a growth in housing demand. Further, limited housing construction can lead to a drop in the supply of available houses, resulting in price hikes and a seller’s market.

Seller’s Market Impact on Home Prices

Houses sell faster in a seller’s market, spurring competition, or “bidding wars,” among would-be buyers because of the low supply to demand. Such market conditions frequently cause buyers to pay a bigger price tag than one would otherwise, opening the door for sellers to increase their asking price.  

In addition, such conditions also generally mean reduced negotiating leverage for the buyer, if they have any say-so at all. In fact, more investors during a seller’s market are willing to accept properties in “as is” condition.

Strategies for Home Sellers During a Seller’s Market

Since sellers have the upper hand in this market, they must compete with each other to lure buyers. Some strategies include:

• Enhancing curbing appeal and making necessary repairs. Aesthetics matter, perhaps more than ever in this market. Without breaking the bank, make sure the home is in good condition.
• Properly pricing the home based on market conditions. While properties in a seller’s market do tend to sell for more money, it remains a good idea to price the property fairly, meaning at or a bit under fair market value. Doing so is more conducive to attracting interested buyers. In fact, one common seller strategy is to spark a bidding war by listing their homes for less than the assessed value.
• Carefully mulling offers. Frequently, sellers are so focused on snagging the highest offer that they neglect to properly consider each buyer’s financials. Avoid accepting an unrealistic offer then having to put the home back on the market when the deal falls apart.
• Being certain about the mortgage approval. Before accepting any offer from someone who requires financing, the seller should make sure they have their initial mortgage approval. Such an approval – not a prequalification – verifies buyers’ finances and credit history.
• Being on the lookout for contingencies. Some offers include contingencies that allow buyers to renege on sales contracts under certain conditions. Such contingencies can include stipulations such as inspection, appraisal, home sale, and mortgage contingencies.
• Hiring a good real estate agent. A good agent is an expert in current sales data as well as the local market.

Strategies for Home Buyers During a Seller’s Market

Likewise, there are approaches for home buyers during a seller’s market when demand exceeds supply. Strategies include:

• Acting swiftly. If not, the property may not be available when you want to make an offer.
• Getting pre-approved for a mortgage to fortify offer. That will provide a competitive edge.
• Not settling. Do not buy just for the sake of buying. After all, purchasing any property is a major investment.  Perhaps a better idea is to continue the home search after the market cools.
• Being flexible with terms and closing dates. Demonstrating flexibility regarding terms and closing dates can benefit the potential buyer.

Should You Invest During a Seller’s Market?

There are still real estate deals to be had, even during a seller’s market when prices are high, and competition abounds. The fact is that real estate, to some degree, consistently remains a popular investment. After all, among its benefits are prospective fund leverage ability, secondary income, tax favorability, steady cash flow, and a hedge against inflation and stock market volatility.

The alternative investment platform Yieldstreet, which seeks to generate passive income streams through asset classes such as stocks and bonds, also offers highly vetted private and commercial ways for retail investors to put capital in real estate.

Such opportunities include Yieldstreet’s Growth & Income real estate investment trust (REIT), a fund that makes equity and debt investments in a variety of commercial properties of various types and in key U.S. markets. With REIT, an investor can buy a property share without possessing a physical property.  

Whatever the manner of investment, real estate also serves another crucial function, and that is to diversify one’s portfolio, thereby potentially mitigating overall risk and volatility. Diversification – interspersing holdings with disparate asset classes — should be the cornerstone of every investment strategy.  

Alternative Investments and Portfolio Diversification

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Whether looking to buy or sell, it is essential for real estate investors to know what a seller’s market is, and perhaps even more importantly, how to strategize and invest once in such a market.