The McDonald Real Estate Team

RE/MAX North Lake

By Sean and Aimee McDonald | Monday, August 7, 2017
The McDonald Real Estate Team, Econ 101: The Supply and Demand of Real Estate

The economic principles of supply and demand play a prevailing role within the real estate industry. A real estate market favoring sellers comes to pass when the demand for housing exceeds available inventories. Conversely, a market favoring buyers occurs when inventories exceed demand. For sellers, the most opportune time to list is when home inventories are low; for buyers, the most opportune time to purchase is when inventories are high.

Seller’s Market vs. Buyer’s Market

In seller’s markets, homes are usually listed for shorter periods of time, generally selling for higher prices. Buyers are often forced to compete given the limited supply of homes available. Bidding competitions are commonplace, occasionally resulting in properties being sold above list price. Conversely, in buyer’s markets, homes tend to remain up for sale longer and sellers are then forced to compete to attract buyers. Periodic price reductions are commonplace in these markets in effort to entice buyer interest.

How to Buy in a Seller’s Market

When purchasing in a seller’s market, buyers should have well-defined expectations. If a home fitting those needs is found, they must be prepared to act quickly, often foregoing the urge to submit lower priced offers. Buyers in competitive markets shouldn’t overanalyze purchase prices; instead, they should focus on submitting their best offer. As to be expected, multiple offer situations are commonplace; to compete, buyers must position themselves to have the strongest offer.

Accompanying an offer with a loan preapproval is vital; however, it may also prove beneficial to provide a strong earnest money deposit. Further, an offer free of contingencies has better odds of being accepted. In these environments, the goal is to submit a clean offer.

As a point of consideration, the most attractive offers are frequently those that not only meet a seller’s financial expectations but also their personal needs. To ensure an offer is palatable, a buyer’s agent should reach out to the seller’s agent; beyond price, gaining insight into a seller’s motivation is often key to crafting a compelling offer that’ll be accepted.

How to Sell in a Buyer’s Market

On the opposite side, abundant listings but fewer homebuyers, evokes a completely different dynamic. When economic conditions are sluggish, with fewer buyers present in the marketplace, sellers are typically forced to compete against one another. The successful positioning of a listed home in a buyer’s market requires strategic pricing, detailed descriptions, professional photographs and advertisement.

Overpriced homes in buyer’s markets, usually fail to evoke interest and in the end, routinely sell for less than what otherwise might have been. In addition, recurring costs associated with home ownership also continue. So, appropriate pricing not only serves to competitively position the home to attract buyers, but also reduces the amount of time a seller is obligated to pay expenses on a home they’ve chosen to sell.

A seller’s competitive advantage is improved if their home has been cleaned and staged. To further attract buyers, sellers may also consider paying a portion of a buyer’s closing costs, offer to include appliances, allow for flexibility on closing dates and openly discuss contractual terms.

Whether selling or buying, choosing a real estate professional well-versed in the dynamics of supply and demand is important. As the market is evolving, seasoned practitioners possess the experience necessary to help both sides make informed decisions. 

Sean and Aimee McDonald can be reached at 775-250-8335 or mcdonaldrealestateteam@gmail.com.