What Does a “Seller’s Market” Mean?

They say that for a market to be at equilibrium there should be about 6 months of inventory. More than 6 months is traditionally considered a buyer’s market, and below that is considered a seller’s market. When you’re in a market with 2 months of inventory or below, like Austin, that means that essentially on average there’s 3 buyers or more for every 1 seller! The competition makes prices appreciate. When you get towards the lower priced housing inventory in a market, the disproportion is greater because there is an even bigger pool of buyers that can afford a home. As buyers increase, so does demand, and so does appreciation. For that reason, lower priced homes generally appreciate a little faster (percentage wise) than higher price point homes.

This swell of buyers at the lower end of the price range is even more dramatic in Austin. Although we have a lot of people from coastal areas move here, actually the greatest percentage of people who move here come from somewhere else in Texas. Because Austin is THE most expensive real estate in Texas, when other Texans come here they have sticker shock, and can’t believe Dallas money or Houston money (for instance) can’t buy them the same home and schools here. They end up having to stand in line with other masses of people who are looking for affordable homes that are in short supply.

What does a seller’s mean in practice? It means that before going under contract the seller is really in the driver seat, calling more of the shots and setting more of the negotiation terms than the buyer does. This also means that (at least in Austin) seller’s don’t really inflate their list price, expecting to get haggled down to the actual price they expected to get. No, instead in Austin the norm is to price the home at exactly what you expect to get, or even less than expectation in order to incite a bidding war. Again, this is all because Austin has been a seller’s market so long that expectations have been calibrated and precedence set. My wife and I do work with a lot of people moving in from other cities or states, and do realize it’s not like this everywhere. In many places, “normal” is to price your home maybe 5-10% over what you actually expect to get, and prepare yourself for waiting a month or two for the right buyer. This is just not how it usually works though in this fast-paced Austin market.

What a seller’s market also means is, unfortunately, a more stressful process for the buyer on the front end, before going under contract. You may have to bite, kick, and really swing your elbows in multiple offer situations. You may also have to act quickly when the right house pops up. I know our parents always taught us to sleep on big decisions, but there’s another phrase circulated here as well: “if you sleep ON it, you won’t sleep IN it.” Perhaps “you snooze you lose” is also appropriate. As much as I don’t like it, sometimes buyers have to adjust to the pace of the market they’re shopping in, and prepare things ahead of time so they can act quickly when the opportunity arises. This seller’s market requires you have your pre-qual letter ready (because all sellers will require it), sometimes it’s good to have a “love letter” introducing yourselves already pre-written, and you’ll need to pick a good realtor that is fast, responsive, and available after hours. My wife and I by now are so used to it that it’s almost unfathomable sometimes when we run into realtors that don’t work nights and weekends. I must be frank, if you have a realtor like this you’re going to be HIGHLY disadvantaged to put it mildly, and it might keep you from getting the house you want altogether. By now we’ve learned to be very fast-paced if for no other reason that the market requires it.

A seller’s market also usually means that seller’s don’t come down on their price in the first week on the market (if they know what they’re doing). After week one, they’ll discuss a little under list, but usually not before then. You might want to be prepared for this if you come from a place where everything is haggled and NO ONE pays list price.

A seller’s market often means that you have to pay more than list price once there are multiple offers. Perhaps in different cities there can be several offers and still no one bids full list price. Not here. I’d say that AT LEAST 95% of multiple offer situations mean a closing price that’s well over list price, often 2-5% or more.

A seller’s market also means buyers have less leverage in repair negotiations after going under contract. Of course if you work with us we’ll help you fight for as many repairs as we can get you, but it might be less than is normal in other cities.

This sounds like only bad news if you’re a buyer huh? Well, it’s actually not. Although the seller is more in the driver seat before the contract is sign, the power shift happens very quickly, and the afterwards the buyer is now in the driver seat. I’ll talk more about this in my upcoming post about how buyer favored the Texas contract process is, and all the disadvantages the seller has. Coming soon…