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.
@SauteePan - I understand the intrigue of buying a hot new gadget but I don’t understand waiting in line for weeks. That seems a little too much for me. I would rather wait until they work out all of the kinks that usually come with a new product before I go out and spend that kind of money.
I think that you can also have a seller’s market with respect to Broadway shows and hot new restaurants. Sometimes if there is a lot of early buzz it will most certainly become a seller’s market and people usually have to wait for months to be able to enjoy a hot new Broadway show or new restaurant that everyone is talking about.
These venues can charge what they want because they know that people will pay whatever they charge.
@Latte31 - I remember those days. I would get weekly flyers asking me if I wanted to sell my home. It was crazy.
The seller’s market that I recognize most is the technology market with respect to some electronic products.
There are some companies that people will buy products from regardless of the price because the technology is so superior and state of the art. It seems that not only will people pay any price for the products but they will wait in lines for weeks in order to be the first to buy these electronics.
That happened with some cell phones and touchscreen tablets. It is incredible to believe that people in a difficult economy will pay $500 for these products. It just goes to show you that if you build a superior product people will pay for it.
Few companies can really attract this kind of buzz for their products.
I think that whenever I hear of the phrase a “Sellers market” I always think of the real estate market during the boom years in the mid 2000’s when the real estate prices were at an all time high.
In those days homes were selling the same day that they came out on the market because the properties were appreciating about 25% or more per year. A lot of people were buying properties which drove up the real estate prices that led to higher gains for those that sold their homes. People were getting into bidding wars and usually paid above the asking price.
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