Why There’s No Such Thing As A Seller’s Market
Q: Gerald, how long do you think the current seller’s market in real estate will continue into the future? Andy, Greenwich, CT
A: While there are certainly many more buyers than sellers in many local real estate markets nationwide, which is why home prices have been going up so fast in so many places, there really is no such thing as a seller’s market because buyers always ultimately determine price. Buyers always determine the price when assets are sold because the person with the money always decides the price. The value of a property is determined by the price a buyer is willing to pay for it. Even when there are many more buyers than sellers as there are now in many if not most real estate markets, it’s always one particular buyer not the seller that determines the final sale price. Many people mistakenly call this phenomenon a seller’s market, because there are so many more buyers than sellers, however what drives and determines home prices are not sellers but rather a few very eager buyers that are willing to pay more than other buyers. Similarly, tenant prospects ultimately determine the final rental price of an apartment or home for rent, not landlords. A landlord can ask for any price he wants to rent an apartment but until a tenant prospect agrees to pay that price, the apartment will sit vacant. Ultimately, the person with the money always determines the final price for home sales or rentals in all situations regardless of whether there are more buyers and sellers or more renters and landlords. Home prices and rents stabilize and go down when super eager buyers and renters are no longer willing to pay more to buy or rent. I have already begun to see homes for sale sitting a little longer on the market as eager buyers retreat in the local real estate markets that I operate in–I suspect because these eager buyers simply can’t afford to finance and buy the higher real estate prices we’ve seen of late. In the end, the person with the money always decides the final price. Thanks for your question, Andy.
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