Days on the Market (DOM)
It appears to me, that one of the common misperceptions about real estate that any offer to purchase property is subject to a response from the seller. The misperception is that because it is for sale, that the owner(s) should jump at any offer that comes along, and be ready to negotiate. In a previous blog, I indicated that sellers/owners should not overlook an offer, even if it is a low-balled offer (http://richfitusa.com/profiles/blogs/the-upside-of-a-low-balled-off...). I still believe that a seller should negotiate a low-balled offer, but I also understand that even for sellers, there is a cutoff point.
Professionally speaking, I believe that a property that is on the market should be negotiated, even if the offer is low, and regardless of how long a property has been on the market. Conversely, I don’t want to give the impression that because a property has been on the market for ions or for a long period of time, that it is a sitting duck for the lowest possible price a buyer can make. Nothing can be further from the truth.
To further deter this misconception about those who believe that a property is subject to be sold for a low price based on how long it has been on the market, I did a little (un)scientific research. I call it (un) because I have taken established information from the MLS (Multi-List Service) for Gulf South Real Estate Information Network http://www.nomar.org/about-gsrein and the New Orleans Metropolitan Association of Realtors (http://www.nomar.org to assist in my conclusion(s).
I extracted information based on the following criteria, consistent with what I have seen over the years. Mostly, that properties that have been on the market for an extended amount of time, rarely sell for less than 90-95% of the listed price. It’s not a definitive fact, but it is a point of reference regarding how properties sell. This does not take into account all economic market conditions, and your results may vary.
I took a recent snapshot of not only three quarters of sales activity here in the New Orleans area for 2012, but I also took a snapshot of all of 2011 in a select area of the New Orleans housing market. Here is what I learned, using the following criteria:
New Orleans Area (East Bank): Areas 59-79;
Bedrooms: 3 -4;
Full Baths: 2 or greater;
Approx Living area: 1500-2500 sq ft living;
Condition: Excellent and Very Good;
Days On the Market or DOM: 180 days or greater
For all of 2011, 76 properties had been on the market for over 180 days, averaging 302.7 days. In the 1st quarter of 2012 (13 properties), the average DOM of properties sold was 254.5 days; in the 2nd quarter of 2012 (23 properties), the average DOM of properties sold was 323.6 days, and as we are going into the 3rd quarter of 2012 (12 properties), the average DOM of properties sold is trending towards 244.3 days.
Continuing to focus only on the average DOM, it is important to understand that some of these properties may have been adjusted for in pricing, for whatever reason. That being said, the list price at the time of the sale is what we are comparing at this time. So, in looking at the snapshots above of listed verses sold price, we see a pattern of sales that indicate the properties selling more closely to the low to mid 90% range. For example:
For all of 2011 those properties that were on the market for more than 180 days, their average sales price was $195,050, (95% of list) but their average listed price was $205,165.70. As we check further into the beginning of 2012, the first quarter of sold properties that were listed for over 180 DOM, the average list price was $180,738.50, and sold for $169,452.50, or 93% of the listed price. The second quarter revealed a 94% listing to sales ratio with the average sales price being $234,887 to $250,330.40 average listed price.
Not missed in this backroom research, is the fact that property listed prices in the above stated criteria for single detached residences, appear to have had a bump in this the month of September, 2012. It is not conclusive of things to come, but deserves to be monitored for any signs of improvement. One possible indicator could be Hurricane Issac which occurred August 29, 2012. As we may recall, a number of homes that were not impacted by Hurricane Katrina in 2005, did go up in sales price in the Greater New Orleans area. But caution needs to be exercised before declaring that the same thing will happen as a result of Hurricane Issac.
With all of this said, how does one put together an offer on a property that has been on the market for more than 180 days? Well, as indicated by our title, one should make his or her best offer. Just because a property has been sitting on the market for an extended period of time, does not mean it is not of the value at which it is priced. A number of factors are constantly swirling around the Real Estate market nationally, and locally, and can affect the sale of a property once thought to have nowhere close to its sale price, and then rise to a value that is unmistakable, and well worth its sales price.
Factors that affect value, affect offering prices, obviously. But knowing why a property that has been on the market for an extended period of time is extremely important, so it requires doing some important homework.
That homework, when done sufficiently and perhaps, painstakingly well, will result in both purchaser and seller getting the best value for their money. But the offer has to be made with confidence in what the investment could potentially yield. We’ll talk next time about how properties have changed in value since Hurricane Katrina in the New Orleans area in our next report. In the meantime, consult with your Realtor on making your best offer for a property that you believe is a great investment. Make Your Best Offer.