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In a market where
home values are rising measurably, homes that are priced a bit too high
will take a bit too long to sell. But
in a stable market or where prices are falling, knowing the value of a
home and knowing how much "fat" is required for negotiating
will make a critical difference. For example, in one
relatively stable major market, the data clearly show that homes with
asking prices that are more than a few percent above their fair market
value will be on the market for an extended period.
Furthermore, in a stable market or where prices are falling,
asking prices that are too high will need to be reduced before a viable
offer is obtained. In this
case, an overpriced home must adjust to "the market."
It is not uncommon to find that over half the homes on the market
suffer from overpricing. Help
your seller to avoid making this mistake. Also, you will want
to keep track of conditions in your local market in order to keep your
sellers abreast. Our
business is seasonal, with supply (the number of homes on the market)
and demand (the number of buyers buying) increasing and decreasing in
some periodic manner each year. Market
information might be available through your local Association or in the
news media. But as we shall see, just because information is published
does not automatically mean that it is accurate or meaningful.
You might want to collect the information independently at the
source. Wherever you get
it, be sure to get it. To
further your understanding and carve out a niche as a market expert, you
might investigate how the information is compiled.
Supply, inventory, or number of homes on the market indicates how
much competition your seller will face.
You will find it at its maximum in the late spring or early
summer, but do not assume this is true, check it.
Get the facts. Demand, the number of
buyers, can be a bit more elusive.
Left to their own devices, many local Associations report
closings instead of contracts entered or pending.
By the time the tally is assembled and reported, the information
easily can be two to four months old.
Knowing what happened four months ago is not timely enough for
either you or your sellers. At
least find out what is being reported so you can avoid drawing untimely
and misleading conclusions. The
best measure of buying activity is buyer commitments, contracts entered.
Even when this data is readily available it is sometimes not
reported. Be alert that it
is widely assumed that buying peaks in the summer.
This assumption can be out of whack by up to four months.
Even though the "kids are out of school" argument makes
sense, it is frequently just plain wrong.
So check it out. It
is critical for your sellers to know whether most buyers are buying in
March or in July. The supply of homes
can be combined with the demand for homes into a number that is an
important measure of whether there is a "buyers' market" or a
"sellers' market." This
market indicator, called the months
supply of homes, is calculated by dividing the number of homes on
the market at some point during a month, by the number of homes sold in
the same month. A number
greater than 6.0 indicates that buyers have the upper hand.
A number lower than 4.0 favors sellers.
A number less than 2.0 is indicative of a "hot" market. A graphical example
of the concept is shown below. Your
home sellers who have a choice will plan their sale so that they are
negotiating with their buyers early in the year when months supply is
lowest. Recognize that the
market index depends upon an accurate figure for homes sold.
As this is not always available, you might have to generate the
data for yourself. Although you can
probably track variations in supply and demand through your local MLS
database, a variation in average sold prices is much more elusive.
If you see published data that constantly fluctuates and seems to
make no sense, it is very likely inaccurate.
Often the most reliable data on changes in average prices are the
regional figures available from our National Association of Realtors.
Do not try to generate this information on your own unless you
are a card-carrying statistician. Note: For more
information on market statistics, see the author’s article in the
April issue of REALTOR Magazine. |
