How Is Market Time Defined In Real Estate?
I was recently asked about the average market time (or time on the market) for homes that have sold in Tallahassee.
Now, I have written on this subject many times in the not-so-recent past, but I have never actually gotten around to providing a definition of market time in real estate, and it is a topic of interest for many people who are thinking about selling their home.
After all, most people who are planning on selling a home must also make arrangements for where they will next live, so understanding time on the market in their area is a critical component of their move.
The History Of Market Time Measurement
Back in the days before the internet, we needed to know the average time on the market because it literally took months to properly engage all of the marketing channels required for optimal results.
People who wanted to move needed to know how long it would take to sell their home so that they could plan accordingly.
Depending on the day you hired a Realtor, it could be a week before monthly ads were due to the magazines, or it could be just past the deadline. This timing could impact your time to market by as much as 60 days.
Also, it took more than a mere visit to the home to prepare all of the marketing materials. To have pictures of the home, film had to be developed, flyers created, and many other processes which required engagement of third-party service providers before a home would be found by the majority of potential buyers.
This means that there was a real, tangible "time to market" that varied based upon publication cycles of national magazines and newspapers, and this time to market could take as much as 60 days before the home was completely marketed to the majority of homebuyers in the market.
But all that went away with the internet. If you hire the right real estate company, 94% of the right buyers today know about your home within four days of it being listed for sale.
Market Time Definition
It seems such a simple concept, shouldn't the definition of market time be "the length of time it takes to sell a home"?
Unfortunately, when you get Realtor reports measuring market time they are seriously flawed.
They are so flawed, in fact, that the information being spewed about how long it takes to sell a home is worthless. So why is this the case?
Measuring Time On The Market
Each Realtor MLS system is different, but I can tell you from conversations I have had with agents around the Country that what I'm reporting is consistent with most systems.
Ideally, we would like to know the date that a home was first listed for sale, the date a home was put under contract with a buyer, and the date the closing of the home sale occurred. Most real estate practitioners would say that the time it took to sell the home was the period of time between it being listed (listing agreement signed between the agent and the homeowner), and the time a buyer executed a contract with the homeowner (which ultimately closed).
Problems Measuring Days On The Market
So if the above measurement is what people would like to use as the answer to how long it takes to sell a home, then the following scenarios demonstrate why most (all?) MLS systems will fail to correctly measure this time.
- For Sale By Owner - It is not uncommon for a homeowner to market their home for sale for a month or so before they engage a real estate company. In fact, there are hybrid real estate companies that (for a small fee) will put a FSBO (For Sale By Owner) listing in the MLS. So what do we do with all the days on the market that has FSBO attempted before engaging a professional real estate comany?
- Failed Listing Period - Even in a hot real estate market, there are owners who engage a listing agent and eventually fail to sell the home. They are faced with listing the home again with that company or hiring another company. Either way, what happens to the days on the market for all the failed attempts of the homeowner?
- Realtor Games - Last, but not least, there are many real estate agents that will cancel a listing after a few weeks or months and start it up as a brand new listing. This "resetting the clock" makes the listing appear new to ignorant buyers and the agent hopes it will help sell the home (yet they keep having to do this???). Often times, this gamesmanship is used by agents to lower their statistical market time and make it look like they are able to sell a home quicker than they actually do. So what do we do with the days on the market from all the cancelled listings that occurred prior to the one that eventually sold?
Why We Cannot Measure Average Time On The Market In Real Estate
So this is the reality that is faced by most Realtor MLS systems (the systems which provide the data for national "experts" to measure market time in real estate).
For example, using all three points above, a For Sale By Owner lists his home for a month and then finally throws in the towel and hires a Realtor to market his home for sale. This Realtor is engaged for a six month period but fails to sell the home. The seller then hires a second Realtor to sell the home, and the Realtor puts it in the MLS. Every five days, the Realtor "cancels" the listing and creates a new one for the home. After doing this 12 times, a buyer is procured and the property goes "Under Contract" one day into the most recent listing iteration.
So what is the market time?
So how many days did we omit from our conclusion?
- 30 days as a FSBO
- 180 days with the first Realtor
- 60 days with the current Realtor under different MLS identities
So the home that took 271 days to sell appears as a one-day sale when NAR tabulates their "facts" about how long it takes to sell a home.
Thus, when we see "market time statistics" published, one should assume that the publisher of this information is either clueless about how long it takes to sell a home, or that the publisher is purposely using misleading information for some specific intent. In other words, they are either ignorant or deceitful, and which of those traits are you seeking in your next real estate agent?
How Long Does It Take To Sell A Home?
To answer this question, you need to only know current market conditions with a primary concern about liquidity.
If 5 homes like yours sell every week, that is a highly liquid market and you should expect and plan to sell your home right away. When the market is not so liquid (like selling a multi-million dollar home in Tallahassee), then you have to study supply and demand and then recognize the price that will procure a buyer.
For most of the NE Tallahassee real estate market, liquidity is ample enough to procure a buyer in 4 to 14 days. That's right, your home should sell within the first few days on the market, but certainly within the first two weeks. Why?
Because 94% of buyers are using the internet during the home buying process. And the ones that are ready to make a decision are searching more than once per day. They are using a property search tool that is updated 96 times per day (unlike the large aggregate sites that advertise all the time on TV).
So if you hire the right local company that can expose your home correctly, and you price your home attractively, why wouldn't one of the ready-buyers buy your home?