In a sellers market, what is the primary factor affecting real estate prices?

In a seller's market, the primary factor affecting real estate prices is that there are more buyers than properties available for sale. This imbalance creates higher demand for the limited inventory of homes, leading to increased competition among buyers. As more individuals vie for the same properties, bidding wars may arise, pushing prices up. Sellers are often in a stronger negotiating position because buyers are more eager to secure a property, which can lead to offers that exceed the asking price.

In contrast, when there are more properties than buyers, it typically results in a buyer's market, where prices may stagnate or decline due to reduced competition. An equal number of buyers and properties usually results in a more balanced market, where prices are stable. Additionally, increased interest rates may have an impact on affordability and buyer behavior, but the fundamental dynamic of supply and demand primarily governs a seller's market scenario.