So what determines if it is a seller’s market or a buyer’s market?

A seller’s market arises when demand exceeds supply. In other words, there are more interested buyers than homes for purchase. When supply is low and demand is high, sellers will have the upper hand in negotiations.

Typically, in a seller’s market, homes sell faster, and home buyers must compete with each other to win the bid on a home. Due to the shortage of housing, these conditions often lead to bidding wars. During bidding wars, buyers will make competing offers and drive up the price, typically above what the seller initially asked for. These market conditions force buyers to pay more for a home than they otherwise would and cause them to have to be more willing to accept the property as-is, rather than negotiating repairs.

A buyer’s market arises when the supply exceeds demand. Or in other words, when the amount of available homes for sale exceeds the number of buyers wanting to purchase one. Essentially, there is a greater supply of homes and a lower demand of buyers. Because there are more homes available, it gives buyers leverage over sellers.

In a buyer’s market, home prices tend to decrease, and real estate may stay listed on the market longer. This causes sellers to compete to attract buyers. In response, sellers typically drop their asking prices to be more competitive and are often willing to negotiate more with buyers. While the lower prices are bad news for sellers, it creates a buyer’s market and can be very advantageous if you are in the market for a new home.

So how do you determine whether its a seller’s market or a buyer’s market?

There are two metrics agents use to determine the market conditions.

The rate at which homes are sold, called Absorption Rate

The average number of days it takes for homes to sell, called Days on Market

What is the absorption rate? The absorption rate is is the number of homes for sale divided by the number of homes sold per month. This figure shows how many months it will take to sell the present supply of homes on the market.

Here is an example. Let’s say that your city has 1,000 homes for sale currently on the market (active listings). If 100 homes sold each month, the supply of homes available for purchase will be consumed in 10 months. Hence, an absorption rate of 10.

If 200 homes are sold each month the absorption rate would be 5 and presumably half the current supply will be sold in 2 ½ months.

In real estate, a market with 0-4 months’ worth of inventory is considered a “sellers market”. It’s important to know that not all real estate markets are the same, and the rate of price increase will change with how low or high this number is. So if there’s 4 months of inventory we might expect moderate price increases, while if there’s only 2 months’ worth of inventory we will see sharper price increases and other things such as bidding wars and bully offers.

At 4-6 months worth of inventory we refer to this as a “balanced market”. That means homes are selling a little slower, but there is still demand. In this market prices tend to remain flat, with no advantage to either buyer or seller.

Once the amount of inventory available for sale climbs above 6 months we are entering a “buyer’s market”. This means there are a lot of homes for sale and not many sales. Homes take longer to sell and seller’s start to reduce their prices in order to attract buyers. If you’re ever wondering if prices will start to go down, having an absorption rate of over 6 is a good indicator.

Typically negotiations take place before signing the initial offer and during the buyer's contingency period after inspections take place. However negotiations can potentially take place anytime before and up to closing and just about everything in a real estate transaction is negotiable - not just price.

Good negotiation is based on the “win-win” concept. Everyone in the transaction gets what they really want and need, not necessarily absolutely everything they’d like. It’s based on conscious compromise, give and take. And it’s the most effective way to end up with the best price and most favorable terms for your home in the shortest amount of time!

My Roll in Negotiations

At its core, negotiation is communication. It's important to listen and ask questions, seeking to really understand all parties to the transaction. We will collaborate together and set goals, prioritizing your needs and desires for the sale of your home. It may also be beneficial to discuss possible areas of compromise before your home hits the market.

When offers come in, I take time to understand each buyer's motivations and priorities by discussing them with the buyer's agent. When a conflict arises, I will work with the Buyer's agent to come up with creative options and solutions that work for everyone while making sure that your most important priorities are honored. I help my clients to keep perspective and stay open to compromising on small issues that allow an otherwise great deal to go through. It is extremely important to stay as calm as possible and to resist over-reacting to unreasonable demands or high emotion from the other side. As your advocate, your best interests, goals and objectives are my first priority.

The Seller's Roll In Negotiations

s the seller, you do not need to be an expert negotiator, but your do play a roll in the negotiation process. Here is a list of items to do during this process:

Remember your priorities: During negotiations and within the contracts, you’ll be

making decisions on hundreds of issues. Some of them matter and some really don’t. But it’s easy to get caught up in all of it and lose sight of what you’re really trying to accomplish by selling your home. Be sure and keep your priorities front and center so that when the inevitable kerfluffle happens, you won’t lose your way.

Stay calm and think it through: Selling a home is an emotional process. It's your home! It's important to stay calm. Take a deep breath. Respond, don’t react. Avoid a knee-jerk reaction and think it through. And if you need time to get into a better place emotionally, sleep on it before making a decision.

Listen and ask questions: As your agent, I will be here to guide and advise you through issue that arrises. This ain't my first rodeo, so please listen. If you don’t agree or understand something, ask questions. Open communication is extremely important to make sure we can find a win-win solution. Together we can collaborate on different solutions to the issue at hand and possible consequences if you don’t agree to the compromise. At the end of the day, you do have the final say in any decision. Let's just be sure to get all the information you need to make a good one.

Be clear: As your agent, I will be negotiating on your behalf. Communication is essential in this process to do my job well. Be as clear as you can with your desires and if you don't like how negotiations are going or have an idea for a better solution, let me know. When you do make a decision or compromise, make sure you are sure enough about it to honor it. Giving your agent clear marching orders will help me represent you to the best of my ability.

Make Sure Your Agent Has the Skills and Knowledge to Protect Your Best Interests

The sale or purchase of a home requires many negotiations. So when you decide to sell your home, make sure you hire someone really good at negotiating. Make sure your listing agent is an expert at their game so that they can negotiate on your behalf to the best of their ability. Your agent should have the skill and knowledge to proactively plan your real estate negotiations for success. As a Certified Real Estate Negotiation Expert and having extensive experience in real estate negotiations, I am well equipped to be your advocate and negotiate the terms of your contract to the very best of my ability.

REAL ESTATE NEGOTIATION EXPERT (RENE) The first and only negotiation credential recognized by the National Association of REALTORS®, the Real Estate Negotiation Expert (RENE) certification is designed to elevate and enhance negotiating skills so that today’s real estate professionals can play the game to win.

Get my FREE Savvy Seller’s Guide here.