Low-Inventory Markets

Whether the reasons sellers choose to list their homes now are voluntary or involuntary, they will benefit from the current lack of inventory in the housing market. Inventory has consistently dropped in Silicon Valley as a result of many factors, most notably because of the increased demand resulting from high job growth and limited construction of new homes. As of the end of September, Santa Clara County had approximately 10 percent fewer homes on the market year-to-date relative to 2016. While this lack of inventory has caused difficulties for many buyers, it has been a positive for sellers who are able to capitalize on the current market.

Lower inventory means each listing has less competition. By its nature, less competition means that there are more people looking at less listings, ensuring there will be more potential buyers for each house assuming the number of buyers is at least consistent with the level prior to the drop in inventory. Having more potential buyers often yields more offers, which result in a higher price due to leveraging offers against each other. The primary result of a low-inventory market is the most apparent one: higher prices.

Higher prices are also tied to low inventory in another way. The number of comparable properties to one that is on the market at a given time is generally lower. Buyers, agents, and appraisers alike look to the sales prices and minor differences of similar properties to compare them to the home on the market, which helps them determine the fair market value. Prospective buyers have to rely on usually just one or two properties that are highly comparable. In complexes with homeowner associations, this is easier with units being more fungible.

When low inventory is coupled with great marketing, new pricing records can be set. DeLeon Realty very recently achieved a new record for our sellers of a townhouse in the Old Mill complex in Mountain View. It was sold for $270,000 above list price and over $100,000 more than the most recent comparable property, which was by far the highest price ever in the complex.

Sellers also have had success obtaining specific terms in their sales contracts that may have been difficult to obtain in higher-inventory markets. With high inventory, buyers considering one listing may decide to move on to another if they find out the sellers of their first choice property require a two-month rent-back. They have better alternatives. In this low-inventory market, alternatives are often less desirable or non-existent, causing buyers to offer generous terms in order to have a shot at winning the home.

Not only can sellers often get a two-month rent-back if they want it, but they are now able to get it rent-free. For example, the sellers of our listing at 236 Liebre Court in Sunnyvale received 20 offers and sold to an all-cash buyer who offered a two-month free rent-back. Besides including free rent-back agreements, large initial deposits that may be deposited immediately into escrow upon acceptance are being offered by buyers who hope to stand out.

In addition, a low-inventory market is often fast-moving. Offer deadlines are common after just one week on the market. Many offers are received at once, and sellers typically accept one that day. In a high-inventory market, buyers have many homes to choose from and some will take longer to sell. Quick closings are also quite common, because a fast one will make an offer more tempting to sellers.

How long this market with low inventory will last is yet to be seen. However, it is certain that sellers will continue to see competitive bids which yield favorable sales presently and in the near future.