When Bic DeCaro met the homeowners of a Great Falls, Virginia, mansion a couple of years ago, they weren’t quite ready to sell. By this July, times had changed.

“Inventory in the luxury market is extremely low, so that gave these owners a great opportunity,” said DeCaro, a real estate agent with eXp Realty in Ashburn, Virginia, near Washington, D.C. “They received seven offers in five days and will close within a month. We had people calling us who were on vacation and begged us to wait for them to get back and make an offer.”

In the D.C. metro area, there’s only a two-month supply of luxury homes, according to Realtor.com’s research, which defines luxury as homes that list or sell for more than $1 million.

“In the luxury market, buyers aren’t impacted as much by higher mortgage rates because they either pay cash or make a larger down payment and borrow less,” DeCaro said. “That’s keeping luxury inventory even lower, with homes going under contract within a few days.”

A balanced market typically equates to six or seven months of supply, according to Hannah Jones, an economic data analyst at Realtor.com. (Months’ supply refers to how long it would take at the current pace of sales for all homes to be sold if no other homes were listed for sale.) A seller’s market equates to six months’ supply or less, Jones said.

“Shortage dynamics fuel buyers’ competitive instincts and force them to outbid each other in the scramble for supply,” said John Walkup, co-founder of real estate data analytics firm UrbanDigs in New York City. “In that sense, listing during a tight market can help boost the negotiating power of a seller to achieve the highest possible market price for their property. However, strong seller markets are not generally the norm, and well-located, well-priced properties trade quickly in most market conditions.”

Besides inventory levels, Walkup suggested owners also understand seasonal market trends and local demand trends before deciding when to list their home.

Luxury markets with low inventory

In addition to Washington, D.C., markets with the lowest supply of luxury homes include Las Vegas, with 1.4 months’ supply; San Jose, with 1.8 months’ supply; San Francisco, with 1.9 months’ supply; and Reno, Nevada, with two month’s supply, according to Realtor.com.

Buyer demand has slowed in most luxury markets over the last few years, and luxury homes are spending a longer time on the market before selling, Jones said. In response, some homeowners may delay listing their home for sale until buyer demand returns, which then exacerbates low inventory.

“General economic uncertainty and higher living expenses due to inflation may contribute to both buyer and seller hesitancy,” Jones said.

That actually gives homes with strong appeal, because they’re updated or in a great neighborhood, an edge.

“In low inventory markets, sellers who are able to provide a well-priced, ready-to-move-in home may still see considerable buyer attention,” she added.

Keeping seasonality in mind

Despite the excessively low inventory of luxury property in her market, Sabra Kirkpatrick, a real estate agent with Brown Harris Stevens in Palm Beach, Florida, has advised her clients to wait until at least after Labor Day to list their homes.

“It doesn’t make sense to put your house on the market when the least number of people are looking at it even if there isn’t a lot of competition,” Kirkpatrick said. “This summer has been extremely hot and luxury buyers are traveling more than ever, so they won’t be here until September if they have kids in school or in November if they don’t have kids.”

Kirkpatrick emphasized that sellers should look at who their potential buyers are and then see what listings may be coming on the market, rather than jumping in just because there are few homes for sale.

“In New York City, it’s not a buyer’s market or a seller’s market, it’s a broker’s market,” said Gerard Splendore, a broker with Coldwell Banker Warburg in New York City. “If you want more business, you have to convince people not to put their life on hold while they wait to see if the market will get better or worse.”

Both buyers and sellers need to be equally motivated and willing to negotiate, he said.
“Some sellers are aggressively pricing their homes because they think they can get anything they want when listings are low or if they’re the only home on the market in their price range,” Splendore said. “But buyers don’t want to pay more than they have to, especially with higher mortgage rates and economic uncertainty.”

In the D.C. area, DeCaro said that while low inventory can nudge some homeowners to list their property, it’s important to understand why someone wants to sell their home.

“If someone is retiring in a year or two or wants to downsize, we know that they can sell now because of the lack of competition,” DeCaro said. “Maybe a year or two from now, you may not get the price you can get now, plus there’s less certainty of a sale in the future.”

One strategy for homeowners who need to sell before they can buy their next property is to go ahead and sell now and rent back their property from the buyers, DeCaro recommended. She recently sold a 10,000-square-foot home in Vienna, Virginia, for $2.7 million that was listed at $2.6 million. The buyers paid cash and offered a long rent back so the sellers can find their next home.

“If you wait, the market could shift again and sellers will face more competition,” DeCaro said. “It’s better to sell when you know you can, rather than get stuck.”

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