What is a seller’s market (and how does it benefit you)?

Two terms that are often bandied about to describe market conditions in real estate are “buyer’s market” and “seller’s market”. While these terms are largely self-explanatory, it’s useful to understand the factors that determine market conditions at any given time.

What is a Seller’s Market?

In essence, a seller’s market is a market that favours the seller over the buyer. That seemingly infinite repository of global knowledge, Google, defines it thus: “an economic situation in which goods or shares are scarce and sellers can keep prices high”.

In short, a seller’s market results when demand outstrips supply.

How do we measure it?

The key metric we use to determine the supply vs demand status of a particular market is the absorption rate. According to Investopedia, this is defined as “the rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the total number of available homes by the average number of sales per month. The figure shows how many months it will take to exhaust the supply of homes on the market. A high absorption rate may indicate that the supply of available homes will shrink rapidly, increasing the odds that a homeowner will sell a piece of property in a shorter period of time.

For example, suppose that a city has 1,000 homes currently on the market to be sold. If buyers snap up 100 homes per month, the supply of homes will be exhausted in 10 months (1,000 homes divided by 100 homes sold per month). If a homeowner is looking to sell a piece of property, he knows that half of the market will be sold out in five months. This rate does not take in to account additional homes that enter the market. The absorption rate can also be a signal to developers to start building new homes.

It is commonly accepted that when supply falls below six months, a “seller’s market” results.

How does this apply to Atlanta, Georgia?

Currently the Atlanta market has supply for only 3.9 months, according to Keller Williams. This figure is up from 3.7 during the last quarter, but down from 11.8 months during May 2008.

This means that sellers can negotiate sales prices that are closer to the original asking price. Typically this is not the case in a “buyer’s market”, where the buyer can exercise more leverage and drive the sale price down. On average, sellers today are achieving 95.8% of their asking price. Furthermore, the average property spends just 45 days on the market across the whole of Atlanta.

As a result, there has been a steady increase in median sales prices (the current median sales price is $225,000), although at a much more sustainable pace than before.

What does this mean for your investment?

Because demand for property in Atlanta remains high, and is growing at a steady rate, the market is highly conducive to YDL’s flipping model. Renovated properties are in demand, the length of time the property spends on the market is short, and sellers are likely to get up to 96% of their asking price.

In other words, it won’t take long to recoup your investment – with a substantial return.

To invest in offshore property, simply contact YDL and let us take care of your international property investment. Our offices are closed until the 5th of January 2015, but I will be available via email to answer any questions.

From the YDL team, we wish you a safe and peaceful break, and a prosperous new year.

Season’s greetings,