What Do These Statistics Truly Mean?

Frequently, we hear or read about real estate statistics in the news media.  What do these statistics truly mean?

The first premise of understanding the meaning of real estate statistics is that real estate is local.  Local can be a town or city or possibly even a county.  Each town, city or county’s real estate can and does perform differently from each other, as well as, from community, neighborhood or subdivision, as well as, historical turnover rates for an area.  Historical turnover rates are indicative of stability and could explain less fluctuations in property values.

We have certainly heard the expression, “location, location, location” and think it means location is important.  Yes, the location is important, but location is beyond just where the property physically exists.  The first location, does mean the physical location.   The second location deals with the schools that a property owner’s children will attend.  It has been proven that locations where the better schools are attended have a better rate of appreciation and demand.  The third location deals with the traveling distance to employment – the closer to employment the greater the demand.

The news media generally speaks of national statistics or on a state level, but rarely discusses the statistics of a particular town or city.

What are the important statistics a potential seller or buyer should seek in determining the best time to place their property on the market or make their next purchase.

The second premise of real estate is understanding the difference between list or ask price, what a seller wants for their property and market value, the price a knowledgeable buyer and seller are willing to complete a real estate transaction.  Sellers can set their list or ask price at any price they think their property is worth.  However, the closer to the estimated market value the ask or list price is generally the faster a property sells.

The third premise is the ownership of a property.  There are distinct differences between ownership – single family (fee simple), condominium, cooperative, or timeshare.  Knowing the differences is critical for determining if the statistics are important for your decision.

There are a number of statistics that a seller or buyer should be aware of in order to make a good decision about what they want to do.  Any user of statistical information needs to know that seasonal fluctuations does impact these statistics and should be given such consideration.

Median price paid – this is the price where there are an equal number of transactions above and below this point.  A year over year analysis is helpful for determining if the median price is up or down from a year ago.  These can be either monthly, quarterly or annually.  When a trend analysis is used in combination with this analysis, one can detect where the market prices are going.  Under any real estate market  condition, an untimely decision can be avoided, by knowing the median price trend rather than a snapshot.

Months of inventory – this is a measure of how many months it will take for the current listed properties to sell based upon a 12 month rolling average of close sales volumes.  A neutral market – one in which neither the buyer nor seller is favored – is about six months of properties.  More than six months favors the buyers, commonly called a buyers market, while less favors the sellers, commonly called sellers market.  This is important to know if you will be in a favorable position or not for your potential transaction.

Pending sales – a pending sale is where a seller and buyer have agreed to transact the sale of a property.  Sometimes called as under contract.  At this time, the actual agreed upon sale price is not know to parties not associated with the transaction.  Pending sales are a good indicator of increasing or decreasing real estate transactions as well as interpolating an estimate of the market values of properties.  Increasing pending sales are an indicator of increased interest in the procurement of real estate, while the reverse occurs when the pending sales are decreasing.  The time between agreement and closing can vary according to local real estate practices – generally it is estimated between four to eight weeks, in most parts of the country.

Closed sales – a closed sale is where a property has actually transferred ownership.  This is generally measured as a volume – increasing signals a positive, while a decrease is a lack of interest in transacting real estate.

New listings – a new listing is any property that has a new listing agreement with a real estate agent, could include properties previously listed with another real estate agent.  The importance of this statistic in the form of developing a trend.  Trends where new listings are increasing can either indicate a real estate market heating up or one that is cooling.  This statistic needs to reviewed in conjunction with months of inventory available and pending sales to develop a clear indication of the market.

There are some other statistics that can be used to evaluate a real estate market – average days on market, list price to sold price ratio, and expired listings.  The average days on market measures the number of days from the date listed until the property receives a mutually agreement sales contract.  It is important to know, if the average days on market calculation includes the contingency period for clearing contingencies.  Contingencies could include such things as home inspections and loan approval.  Such contingencies can add as much as 28 days to the average number of days on market, thus becoming a misleading statistic.

The list price to sold price ratio measures the difference between what the seller has the property listed at when the sales contract is agreed to and the actual price paid.  Although this figure can be helpful to measure price flexibility, it can be distorted by properties sold where the seller pays for some of the buyers’ closing costs.  The seller’s payment on behalf of the buyer can be included within the sales price of the property.  However, it can also, measure the flexibility of sellers list prices for a particular neighborhood or subdivision.

Expired listings reflects those properties that failed to sell during the contracted listing period.  Listings expire for one of the following reasons, over-priced, lack of promotion or lack of marketing.  These properties could be re-listed with the original real estate agent and show as a new listing.  Expired listings as a statistic maybe informational, but is more important when determining a list price or for preparing an offer to purchase.

Before selling or buying real estate, be sure to seek out the statistics directly related to the property and do not rely upon statistics which are general in nature.