So often in our business we use terms or phrases and just assume that the general public completely understands them. The concept of supply and demand and how that affects prices is very critical for people wanting to buy or sell real estate.

Let’s start with a very easy example so I can make sure that you understand the concept. Pretend you want to sell chocolate chip cookies in front of your house. You only have 10 cookies but there are 20 people waiting in line to buy those cookies. Do you think that you will need to mark the price down on any of those cookies in order to sell them? No and there is a good chance you might even raise the price a little bit. More buyers than you have product… That means the market is out of balance. In our cookie example it’s favoring the seller. Now let’s say you had 50 cookies but only five buyers looking for cookies. The chances are good you’ll have to drop the price on those cookies in order to get them purchased. That too is a market out of balance, but this time it favors the buyer.

Now let’s apply this to houses and we will add the concept of absorption rate or number of months supply of homes for sale. Absorption rate is the period of time it would take to sell every home in a certain price range that is currently on the market at the current rate that buyers are purchasing in that particular price range. We like to say that a six-month supply is a market in balance and an absorption rate that is less than that would be a sellers’ market and if the absorption rate is longer than that it would be a buyers’ market.

Now how can you use that information to be of benefit to you? If you are a seller, you would like to price your property in a price band where it is considered a sellers’ market. If you are a buyer you would like to buy in a price band that is a buyers’ market. Does this help you at all? Please feel free to give me a call and I’d be happy to discuss these concepts in greater detail with you as it pertains to Durango real estate.