Buyer’s Market?  Seller’s Market?

Often I receive a call from someone asking what the difference is between a seller’s market and a buyer’s market.  These terms are thrown around, with the basic understanding that a buyer’s market benefits the buyer, and vice versa.  While that is a true statement, having an idea of where those terms come from and how to determine the difference might make things a bit clearer, and may put you at an advantage in the marketplace.

Let’s start with a couple of solid assumptions:

Absorption Rate

This is a critical measurement of the current market conditions.  Simply stated, absorption rate is the amount of time it will take to sell the quantity of properties on the market in a given time frame, using recent data as a barometer.  The more precisely you define your parameters, the more accurate your result will be.  For instance, homes in the seacoast of NH might range in price from $130,000 to over $5,000,000.  Obviously, data derived on that wide cut will produce results that are unusable. You might want to narrow the criteria to single family homes in Hampton between $300,000 and $400,000, using sales data for the last 12 months.

Using those parameters, if there were 12 homes on the market in Hampton in that price range, and 36 homes had sold in the past year in Hampton in that price range, it would take four months to sell the current inventory of homes.  Another way to express this is to say the Absorption Rate is 4.

What Is The State Of The Market?

This is a loaded question.  Gen lly speaking, experts consider a 0 to 3 Absorption Rate to be a seller’s market, a 3 to 4 a balanced market, and over 5 months supply to be a buyer’s market.  This is the law of supply and demand at work- if there is more demand than supply, the absorption rate is low and the prices increase.  Conversely, if there is more supply than demand, properties sit on the market longer and the prices fall.

What is the current Absorption Rate?

Is it a buyer’s market?  Is it a seller’s market?  As you can tell from the previous information, there is no one answer.  It depends on your location and price range, and the results are constantly changing. 

Why Is This Important?

Do you want your house to sell quicker than the competitive properties in the marketplace? Of course you do. Time is money.  When you are marketing your home, the expenses continue- mortgage, interest, insurance, taxes and utilities.  Acquiring, understanding and utilizing market data pays off in spades.  Knowledge is indeed power in the real estate market.  A thorough understanding of market conditions coupled with specific competitive property information and a disciplined approach and execution of your plan will make you master of your market.  You will get the best possible price for your property in the least amount of time. Now that’s a win-win situation!

---