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Market Demand and Supply The housing market in the UK is segmented. Virtually every individual property has unique characteristics in the marketplace which affects potential demand and value. The interaction between market demand and supply The determination of price levels in local housing markets are examples of microeconomics in action! Each day there are literally hundreds and thousands of separate interactions between buyers and sellers with prices being offered and agreed before a final transaction is made. The price that is established with each housing transaction in the market depends on :- The price that the seller is willing to agree for their property with the buyer and The actual price that the buyer is willing and able to pay Offers and reservation prices Home-buyers place offers for a property that the seller can either accept or reject. The seller will often have a reservation price for a property – that is a minimum price that they are prepared to accept from a potential buyer. A Sellers Market When market demand for properties in a locality, area or region is high and when there is a shortage of good quality properties (i.e. supply is scarce) then the balance of power in the market shifts towards the seller. There is nearly always excess demand in the market for good quality properties because they tend to be in short supply. As a result, the seller can wait for offers on their property to reach (or exceed) their minimum selling price. Indeed early potential buyers may come straight in with an offer in excess of the asking price in order to avoid the possibility of losing the property that they want. A Buyers Market When demand for housing is weak during a downturn or perhaps when much of the available housing has become unaffordable, and when there is an excess of properties available on the market (excess supply), the balance of power switches to potential buyers. They have the luxury of a much wider choice of housing available and they should be able to negotiate a price that is lower than the published price. Sellers may require a quick sale and this puts extra bargaining power into the hands of buyers. |