Real Estate Metrics
Some of the common Real Estate Metrics that buyers and seller need to understand
These are the most important metrics that are used to determine how the market is performing.
Days on Market
The abbreviation DOM is often used to represent the “Days on Market”, “Time on Market” or simply “how long a property was for sale”. This is a vital statistic used to measure the health of any real estate market, area or region. The statistic is defined as the total number of days the listing is on the active market before either an offer is accepted or the agreement between the real estate broker and seller ends.
Generally, properties with a large DOM value will command lower prices than properties with few DOM because a perception exists that the property may be overpriced or less desirable. DOM often factors into developing a pricing strategy. DOM can also be used as a “thermometer” to gauge the temperature of a housing market.
The other use for this statistic is allowing prospective home sellers an idea of how long it may take to sell a property. The MLS is controlled by the real estate industry and has been the subject of many lawsuits.
This value is not necessarily how long the house has been on the market due to intricacies within the multiple listing service (MLS) database. Depending on the rules of the MLS that is being used, the number is reset if a seller switches real estate agents. Sometimes there is also the arguably unethical practice of “withdrawing” the listing before it expires and adding the listing again to reset the DOM. As a result, when this statistic is used it is often lower than the true value. However, savvy real estate agents (if the MLS allows) will research the property’s listing history and can tell more effectively how long the property has been on the market.
Cumulative Days on Market (CDOM
DOM measures the number of days from the last time a listing is listed to the last pending status before the listing is sold. CDOM measures the number of days from when a property is first listed to when a property goes into the last pending status before being sold. For a visual explanation of this, see below.
(note contingent is the USA term for what we call Conditional)
So if a home goes on the market in January, receives no offers or showings, is removed from the market in March and then put back on the market in May before being sold in June, CDOM captures those first three months of listing, whereas DOM only counts from May to June.
Months of Inventory
Months of inventory, also known as months of supply, represents how long it would take to deplete inventory assuming no new inventory is purchased or put on the market. It’s commonly used in the real estate industry to determine the health of a particular real estate market.
- Identify the number of active listings on the market within a certain time period. For example, you might search the Multiple Listing Service to find out how many active properties were listed in a particular city for the month of February.
- Identify how many homes were sold or pending sale during that same time period.
- Divide the active listings number by the sales and pending sales to find months of supply.
For example, say there were 500 active listings in February, and 125 sales and pending sales. Months of inventory is 500 divided by 125, or 4. That means that, if no new homes are listed, it would take four months for the homes currently on the market to sell.
Seller’s Market: A seller’s market is when there are more people looking to buy then there are homes available. This causes a rise in price above the long-term average rate of inflation. Typically this is indicated by a sales-to-active listings ratio of 20% or less than 4 months of inventory.
Buyer’sMarket:In contrast, a buyer’s market is when there are more homes for sale than there are buyers. As a result, prices typically either decrease or increase at a pace below the average rate of inflation. A buyer’s market occurs when the sales-to-active listings ratio dips below 12% or there in more than 6 months of inventory.
Balanced Market: A balanced market occurs when supply and demand are about the same, with home prices rising in line with long-term average rate of inflation. Typically this is indicated by a sales-to-active listings ratio between 12% and 20% or 4 to 6 months of inventory.
Average Sales Price
The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold.This amount is often used when comparing the average sale price to different periods to determine if prices are flat, increasing or decreasing. It is also used when comparing different regions to determine which area are the most affordable.
Medium Sales Price
The problem with the average sale price is that if one or more properties were sold at an extraordinarily high or low price, the average is skewed higher or lower as a result. In this case, the average becomes a somewhat unreliable metric.
The median sale price, on the other hand, is the sale price in the middle of the data set when you arrange all the sale prices from low to high. The median sale price, then, represents the figure at which half of the properties in the area sell at a higher price and other half at a lower price.