What is a Seller's Market?

A seller's market can refer to any type of market for goods or services where demand exceeds supply. You can find this seller advantage market for all kinds of items. For instance, a year where the strawberry crop is poor might create the conditions of a seller's market. Since greater demand exists for strawberries than can be satisfied by the supply, those who grow strawberries, or purchase them and sell them at retail prices can charge greater amounts. If people want them, they’ll have to pay higher prices to get them.

Similarly, certain “new” toys and gadgets can create an instant seller's market when they are released. If the company believes that they are testing the waters with a new product, and doesn’t manufacture enough of that product, you’ll see a higher demand than existing supply. This doesn’t necessarily mean that the company will change the price of the item in demand. What tends to frequently occur is that individuals may attempt to buy the product and sell it on the Internet for a much greater price.

This has certainly occurred in the past with simple toys like Tickle Me Elmo®, where some people obtained large quantities and sold them for four to five times their retail price. As popularity of the toy decreased, supply easily met demand, and within a year or so of release, you could even find the toy on sale in most stores. Also, when the Nintendo Wii® was released in 2006, if you couldn’t find one in stores, you might pay 600-1000 US dollars (USD), over double to four times the retail price, to obtain one from a private seller.

You will most hear the term seller's market as referring to real estate, particularly single-family homes. When the market is advantageous to the seller, more people want homes than can get them. This allows homeowners to charge much more for their homes, because a homebuyer will be willing to pay a higher price. Generally, the price of homes reaches a cap, and a point at which potential homeowners can’t purchase a home. This gradually helps stabilize the market and create a more even division between supply and demand.

While a seller's market exists in real estate, homeowners who don’t plan to sell their homes can find themselves in a very advantageous position. Their homes are suddenly worth a great deal more, and if they need to refinance, the rising value of their home may make this possible. Alternately, they may find themselves in a position where their equity now far exceeds their current home loan, and they are able to completely pay off their mortgage. Banks, too, can benefit during a market that benefits sellers, because they can be very selective about who they lend to, and can charge higher interest rates. Yet again, if interest rates become too high, they can deflate the seller's market.

The opposite of the seller's market is the buyer’s market, where supply greatly exceeds demand. In this type of market, the value of homes sinks significantly, creating great opportunities for people who want to purchase a house. Suddenly, banks are more willing to loan money to people with poorer credit, and you’re more likely to be able to find a house at the price you want, than you ever could in a seller’s market.