Recognizing The Importance Of Liquidity In Your Housing Market
When pricing a home to be sold, it is imperative that you analyze and recognize the importance of liquidity in your housing market. After all, home values are dropping in most US markets and the traditional method of price and wait is no longer working for those homeowners who must sell their homes.
Investopedia defines liquidity as the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets. So how does this all factor into pricing a home to sell in your local real estate market?
We measure liquidity as a relative measurement in real estate. High liquidity is the range of home values that have the most home buyers, low liquidity is the range of home values that have the least buyers. The higher the liquidity, the tighter our value ranges and the better we can estimate the final selling price of a home.
Real Estate Liquidity
Applying the concept of liquidity when determining the value of a home starts as a mathematical process, but ultimately ends with an application of experience. The best way to demonstrate this is to look at a simple chart of of supply and demand of homes for sale (Tallahassee will serve as a good example) and then break it down into the easy to understand information that home sellers need to make a decision on pricing.
In the real estate chart above, we see that there are 13.8 months of supply of homes for sale in NE Tallahassee priced between $300,000 and $500,000. That means that if no other homes are listed for sale in this price range, we have enough inventory for the current rate of demand for well over a year. This is definitely a case of "over supply." With 183 homes selling in a year, or 15 per month, we can say that their is a moderate level of liquidity and we can determine a home's current market value to a fairly high degree.
When we look at homes priced above $750,000, the liquidity drops to fewer than 1 buyer per month! By observing liquidity in the real estate market, we know that our confidence in pricing a $1M dollar home is far lower than our confidence in pricing a $350,000 home. But what does all of this mean to somebody who wants to sell a home in NE Tallahassee?
Real Estate Liquidity And Market Feedback
If you are trying to sell a $1M home in Tallahassee, there most likely are few buyers for your house. It might be weeks or even months between showings, and a decision to purchase is only going to be made every 6 weeks. However, if you have a $350K home for sale in Tallahassee, then there are 15 decisions going to be made each month. That means your home should be shown every other day or more, otherwise, you are overpriced. Every 2 days somebody decides to buy a home for $350K, so if you are on the market, being shown on a limited basis, the market has spoken and it does not like your price. Of course, I am assuming that you are utilizing an aggressive internet marketing campaign to reach ready buyers for your home.
Joe Manausa Real Estate is a brokerage company headquartered in Tallahassee, Florida. Its unique business model provides specialists to both home sellers and home buyers, and the results speak for themselves. JMRE has significantly more 5-star reviews on google than any other local competitor. Joe Manausa Real Estate is a leader in internet marketing and utilizes search engine optimization, email marketing, social media and data analytics to get their clients’ home sold faster and for more money than any other Tallahassee brokerage firm. For more information, visit www.manausa.com or call us at (850) 366-8917.
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