Real Estate Metrics: Numbers Sellers NEED to Know

Sellers are trying to understand the market. Buyers have figured it out. Buyers have the upper hand. In some instances, they have the only hand. Rather than expound on the obvious, (it is a buyers market), it makes sense for seller’s to learn what the fundamentals are.

For the past forty plus years, most sells relied more on competing properties to determine value. Clearly sellers needed to look at closed transactions, but the philosophy was price ‘to’ your competition. The assumption has been that there is demand and that the delta between demand and supply was always within realms of reasonable. Some markets were sellers markets and some were buyers’ markets. This market is so extreme that the approach of pricing ‘to’ your competition is now obsolete.

Sellers must price to the price that will generate a sale, not traffic (showings) or interest. In the Rhode Island market generally, distressed sales, foreclosures and short sales, make up almost half of the market. Simply stated, sellers are competing against foreclosed and short sale properties. This means that prices will be lower. In many neighborhoods prices have continued to go down. That makes pricing very difficult.

So what are the numbers that a seller needs to know to price his or her house: First, he or she needs to know about the recently (90 days) closed properties. The absorption rate, how fast are houses selling, is also important. It is usually ‘figured’ in terms of months. How many months will it take to sell all of the properties currently listed and the current rate of sales?

The interest rate is very important. The mostly buyer of your home is going to have a mortgage. Need to understand what the mostly type of buyer your home will appeal to. If it is a first time homebuyer, it is mostly that the loan will be 90 or 95%. Take the time to determine want the potential buyer need to pay on a monthly basis. Most sellers ignore this step, ‘the price is the price.’ But in a market with higher unemployment and limited wage growth, what the buyers can afford to pay will have a profound impact on the sales price. The number you need is the monthly cost of Principle, Interest, Taxes and Insurance (PITI) for a buyer with a 10% down payment. This is what it will cost the new buyer to live in your home.

Two numbers are very misleading: days on market and the list price/sales price ratio. Days on market are difficult to us as each listing agreement starts at day 1. So if a house has been listed three times, the totals days on market may be 430, but the MLS reports that days on market are at 76. You want to look at the ‘property history’ to get a true picture of the total days on market. List price sales price ratio is also difficult and distracting. First because of the multi listing agreement situation just described, but also because of the price adjustments during the listing. If a property was originally listed at 475k and was reduced to 425k and sold at 400k…Which numbers do you compare? Clearly you need to build into your price room to negotiate. You will get there much sooner if your original list price is at or below other sold properties, not other competing properties. (There are still a number of sellers who are shopping for their price. Even if you find a naïve buyer the appraisal process will prevent the buyer from being able to over pay. So as a seller you need a naïve cash buyer to have a chance of selling above the market. Those buyers are 1 in a million.)


Ultimately, you need arrive at a list price that is not competitive, but compelling. You need that price that says to a buyer, we are a great value, not simply a fair value. We have a significant oversupply; price is the only ‘cure.’

One final number you need: a phone number to your local Realtor. This market is uncharted. You need expert advice to analyze and interpret the numbers. Many Realtors, including this one, work on a contingent fee. If successful in selling the property, he, she or I am paid. That is a really pro consumer model. Get professional advice. According to the National Association of Realtors, unrepresented sellers end up netting 16% less after success fee (commission) than represented sellers. Make sure the Realtor you hire is a full time, experienced licensee with a record of sales in this market. It is also appropriate to interview more than one Realtor to represent you. Finally, ask about the success fee (commission). It may be more competitive that you expect. Ask if the Realtor has a variable rate fee, which can be other, (most often lower), if both ‘halves’ of the sale, seller half-buyer half, are completed by the listing firm. That will also involve a conversation about agency and representation. Who represents whom?

You have enjoyed the shelter that home ownership has provided. Make sure to ‘capitalize’ as much as the market will allow when you sell. But that requires that you be realistic and reasonable.


The Numbers the Sellers Need:

1. Sales Price of Comparables (90 days)
2. Absorption Rate (Months)
3. Interest Rate
4. Monthly Payment (PITI)
5. Realtor’s Phone Number

How long before it sells? Hard to say

Providence Journal December 21, 2008

How long does it take to sell a house in today’s chaotic real estate market? Although potential sellers can get plenty of advice — most of it centered on setting a realistic price at the beginning of the process — there is no definite answer.

According to statistics collected by the Rhode Island Association of Realtors for the third quarter of this year, the median “days on market” numbers for all three categories of residential properties were up from the same period last year, including single-family and multifamily properties (88 this year, 72 last year), and condominiums (124 this year, 102 last year.)

Most agents agree that, at best, the statistic is a ballpark figure; overpriced houses will linger on the market much longer than average, and properties priced right will sell most quickly.

But even the president of the Realtors’ association acknowledges that the statistics have very little real-world usefulness given the way properties are listed and relisted when contracts expire, prices drop or sellers change real estate agents.

“It’s not a true statistic,” said president Paul Leys.

The “days on market” statistics may have had had a bit more meaning when market conditions were better. When the market was booming, many properties would be under contract well before a 60-day or 90-day listing contract would expire. But today, it is not uncommon for houses to sit on the market for many months, or even for more than a year.

Frustrated sellers are more likely to change agents and/or engage in multiple price cuts, actions that could result in their property appearing in the Statewide Multiple Listing Service as a “new listing.”

In the MLS, the “days on market” clock is reset when properties are relisted after a previous contract has expired, according to Donna McGinn, administrator of the Statewide Multiple Listing Service.

For example, if a house had been listed by Realtor A for 90 days, then listed with Realtor B for another 90 days, and the seller then signed a new listing contract with Realtor B for another 90 days and the house sold 15 days later, the statistics could show that the house sold in 15 days.

As a practical matter, however, real estate brokers and salespeople, and others who have access to the MLS database, can find the listing history of individual properties, including how long it has been for sale and how many times the price has been cut, Leys said.

Buyers who want to know this information can ask any agent for it. (Brokers and salespeople could risk losing their state real estate licenses if they misrepresent facts to buyers, even when they are representing sellers.)

“Buyers should know how long a property has been on the market,” Leys said. “It’s the reality.”

“If you want to track a property, an agent can provide that tracking for you,” said broker Ron Phipps, owner of Phipps Realty of Warwick. But he added that “as an agent, I want the timeline to be reflective of my listing agreement.”

Although the current system has its flaws, Phipps said, the days on market can provide information on how long a property takes to sell at a certain price point. For instance, if a property priced at $500,000 sat on the market for five months, but was relisted at $425,000 and sold within one month, the statistic reflects the marketing time based on the “real market price,” he said. “At 500, they weren’t really on the market in a realistic way.”

Phipps said the high number of distressed properties in today’s marketplace is affecting the average time on market. In the case of a short sale, in which the lending bank has to approve a sales price that is below the outstanding mortgage, many extra weeks of delays are common, he said.

“I’ve got a couple of properties that are upside down,” Phipps said, referring to a case when the mortgage is higher than the current market value. Problems and delays are occurring “not [due to] a lack of offers, but an unwillingness of lenders to work with us,” he said. It can take a lender 30 to 45 days to respond to an offer on a short sale, Phipps said, and that would count as extra “days on market.”

Leys and McGinn said the association has been thinking about altering the way relistings are handled. McGinn said the Statewide MLS may get a computer program that would automatically add plat and lot numbers to properties, and this would give each listed property an “individual identifier.”

Theoretically, if someone takes a property off the market for the winter, after it’s been on the market for 200 days, the “days on market” clock could stop when it was taken off the market and restart at 201 when it went back on the market in the spring.

But for Phipps, and for many agents working to sell real estate, the attraction of relisting long-marketed properties as “new listings” is the hope that this action will bring fresh attention from the market, even if the “new listing” moniker isn’t exactly accurate.

“My job as a listing agent is to sell the property,” Phipps said. “…At the end of the day, price really matters. If it’s well priced, it’s going to do well….The average time on market, frankly, is a distraction.”