The Town Broker

Real Estate Statistics: What You Need To Understand. (Part 2)

Real estate statistics can be confusing, and real estate is FULL of statistics! In Part 1 of this 3-part series, I looked at market absorption, how it describes the “dynamics” of the real estate market, and how you can use it to your advantage! In this post, I’ll look at another key market statistic: days on market (DOM).

Know The Key Real Estate Statistics To Achieve Success

Days on market measures just what it says…the number of days that a home has currently been on the market. Why is this number so important? Because it can tell what the market thinks about the value of the home.

When a new listing comes on the market, it becomes a little like “NFL draft day”. This is the day when the promising college football stars go on the “auction block” for the NFL teams to bid on.

If you’re a college player and the scouts & coaching staff think you’ve “got the goods”, you might be lucky enough to get drafted in one of the early rounds. You will have commanded a hefty pricetag, and will be well on your way to fulfilling your childhood dreams!! But if you slip to the later rounds, your fate will be much less certain. You can have the best known agent and  muster all the bravado in the world, but it won’t change the fact that the scouts just don’t think you’re as good as the others in the draft. Team owners won’t be wiling to pay a premium price for your services, and you’ll need to make some serious concessions in your contract expectations in order to have any real chance of playing. (Lets face it…you’ll still have a shot at playing in the NFL, which is AMAZING! But you didn’t achieve the superstar status. So for now, let’s try to make the analogy work.)

The buying public treats new listings the same way.

They’ve been “scouting” the available inventory, and if they think a new listing has ”got the goods”, they’ll gobble it up quickly….usually at, above, or very close to asking price. But if the listing slips into the later rounds, it’s fate becomes more uncertain. Buyers will assume that the extended market availability indicates a diminished value, and will be far less likely to pay at or close to asking price. During the extended market time,  the seller will incur additional carrying costs. And if the market is losing value over this period (as it did for much of the past 2 years), the real value diminishes the whole time.

This is a lose-lose-lose scenario for the seller!

Generally, the window of opportunity is 30-60 days. If a new listing doesn’t go under contract by this time, there seller will need to radically change their value proposition. Unless they plan to do something to significantly improve the ammenities or condition of their property, then the primary way to increased value is to lower the price. And that hurts!

To make matters worse… the property has now slipped to the later rounds in the draft. The “scouts” have already decided that this player is of lesser quality. And just as the aspiring football star is forced to make concessions on their dream for that big contract, the seller is often forced to accept a larger reduction in price than they wanted to when they came to market.

Buyers in today’s market know how the game is played. They watch the days on market closely so they know how much leverage they have in the game. And the more time goes by, the more leverage the buyer has to move the seller off their original asking price.

Once in a while, you’ll find a seller who takes the house off the market so it can be re-introduced…resetting the days back to zero. But like the NFL team owner in our analogy, the buyers know what they’re willing to pay for, and are rarely fooled.

It’s critical that both sellers and buyers know the average days on market (DOM) for the market they’re in. This can differ greatly by neighborhood and price point. For sellers, it’s important to have an accurate perception of how you compare to your peers. This way, you can decide what needs to be done so that you’ll go under contract in the early rounds where the money is better.

And buyers need to know where they’re entering in the bidding. A homeowner is less likely to tolerate a lowball offer when they’ve just come to market. Hey…why would a player drafted in the first round accept the same money as a player drafted late in the process?

The rule of thumb is simple: if you want to take a house off the market early in the draft, you better be prepared to pay the early round premium!

Look for Part 3 of this series, where we’ll take a look at Sale Price Ratios.

Tags: days on market, DOM, Real Estate, real estate statistics

This entry was posted on Tuesday, January 26th, 2010 at 6:22 pm and is filed under Buyers, Real Estate 101, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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