There are three types of real estate markets. A seller’s market, a buyer’s market and a neutral market.
Where Sales-to-New Listings ratio is between:
0 – 39% Buyer’s Market
40 – 60% Balanced Market
61 – 500% Sellers Market
A seller’s market is when market conditions favour sellers over buyers. According to the Canadian Real Estate Association, a key metric to look at is the number of sales to new listings ratio (or SNLR). Generally speaking, it is when there is a higher demand for houses for sale than there is supply. A low inventory of homes for sale means there are more buyers competing, which drives up selling prices and results in homes selling faster.
It is characterized by homes spending less time on market (DOM or days on market), with selling prices at close to or even surpassing list prices (SP/LP or sale price to list price ratio). Bidding wars, or multiple bid scenarios are common in a strong seller’s market.
- More buyers than homes for sale.
- Prices tend to be higher because of increased demand
- Homes sell quickly
- More likely to be multiple offers on a home, which gives sellers negotiating power (and conditional offers may be rejected)
Durham Region has been in a seller’s market for a number of years now. Looking at the year-over-year comparison there is a 25% increase over the same time last January. Sellers can benefit from the current conditions by taking extra steps to set their property apart through marketing and staging, together with a good pricing and negotiating strategy.
Buyers need to be prepared to act quickly by getting their finances in order (get a pre-approval, or have liquid capital ready). They should also be in an action-oriented mindset. Sitting on a decision, even for a few hours could be disastrous. If you’re looking to buy in a difficult seller’s market, there are things you can do to improve your likelihood for success.
- Get pre-approved for a mortgage first, so you know how much home you can afford
- Put forward a strong offer with a significant deposit amount
- Move quickly on a home if you like it (and be aggressive without being annoying)
- Make your offer as attractive and uncomplicated as possible (i.e. eliminate as many contingencies as possible, such as a contingency on sale of your existing property, shorten the closing date or come up with a larger down payment)
- Be agreeable and responsive
- Be flexible with your move-in date
- Appeal to the seller with a personal letter
If you’re looking to buy (or sell) a home, it’s important to know which type of market you’re entering into. If you’re unsure, ask your real estate agent. Of course, selling a home in a seller’s market is optimal, as is buying a property in a buyer’s market. But people don’t necessarily have the luxury of timing their home sale or purchase to coincide with the most advantageous market.