When starting your home search, it’s helpful to know what type of market you are getting into and how to prepare appropriately. As your agent, there are three key metrics we review to gauge the current market environment:
Months of inventory
Average days on market (DOM)
Months of Inventory
When reviewing supply, we take a look at how many homes sold within the past 12 months and how many homes are currently active on the market. The current months of inventory is calculated by dividing the active listings by the average monthly sales.
In general, six months of inventory is considered a balanced market. If the current months of inventory are less than six months, it is considered a seller’s market. If there are more than six months of inventory, it is considered a buyer’s market.
It’s important for you to understand the current level of supply in your market so you know what to expect in your search. If there is a shortage, you must act on new listings quickly and make a more competitive offer in order to secure a sale. If there is a surplus, you may have more time to think about a listing before you put in an offer.
Sale-to-list Price Ratio
Another important figure to review is the sale-to-list price ratio, which is equal to the closed price (what the buyer paid) divided by the last list price.
If it is between 95% and 99%, it is a balanced market.
If it is <95%, it sold for less than the list price and it is a buyer’s market.
If it is >99%, it sold for more than it was listed for and it is a seller’s market
Knowing the sale-to-list ratio of comps helps guide our buyers in crafting an appropriate offer and negotiating a deal. If the current market is seeing over 99%, then you know your offer must be competitive. If it is less than 95% then you may have more negotiating power.
Average Days on Market (DOM)
When reviewing the days on market, we look at the number of days a property is listed before going under contract.
If the average DOM is between 30 and 60, it is a balanced market.
If the average DOM is >60, this is a slow market, favoring the buyer.
If the average DOM is <30, this is a fast market, favoring the seller.
This figure gives buyers an understanding of the current market pace and sets the tone for how quickly they must move when a home is first listed. If homes are going under contract in less than a month, then you should be prepared to view and make an offer promptly. If homes are staying on the market for over 60 days, then you may have more time in your search.
Understanding the Market
These three figures are an important way for us as your agents to prepare you in your search for a home. Gaining a greater understanding of the current market landscape empowers you to be competitive and negotiate a successful deal.