Definition of Seller’s Market
A seller’s market is when the real estate market conditions favour sellers. Typically, a seller’s market is determined by a lack of supply either in the overall market or in a specific property type.
The type of market is usually determined by the market absorption rate, a ratio that’s expressed as a percentage and is calculated by taking the total number of sales at the end of a given time period (in this case, a calendar month) and dividing it by the total number of active listings available during the same time period.
The higher the ratio, the more demand for the property and the more opportunity a seller will have to attract a higher price for their home for sale.
Why is this term important?
A seller’s market describes market conditions that are favourable to sellers. When there is a low supply of homes available for sale and a high demand for purchasable property, potential buyers are forced to compete. This leads to bidding wars, faster closings and higher sales activity.
In comparison, in a balanced market, when the supply of housing meets the demand from potential buyers, sellers are usually prompted to accept reasonable, close-to-list-price offers, while homes for sale typically stay on the market for about the average number of days. In balanced markets, prices remain fairly stable. In seller’s markets, prices will start to climb, sometimes quite quickly.
Examples of term
In 2017, most of the major urban neighbourhoods in the Greater Toronto Area and in the Greater Vancouver Area were in a seller’s market, where seller’s could expect bidding wars and higher-than-list sale prices.