How Long Will Your Home Stay on the Market?
Last week, I had an interesting discussion with a relocation appraiser about forecasting how long a home will stay on the market and how to determine an asking price that will shorten "days on market." You can use these ideas to help you price your home for the current market and to help you predict how long it will take to sell it.
What is a relocation appraiser? A relocation appraiser is an appraiser who specializes in preparing appraisals for third party relocation companies. These companies assist employers in getting their transfering employees moved to their new destinations within a reasonable amount of time. Appraisals from more than one relocation appraiser are used to help the transferee price his home and if the transferee has a home buyout from the employer, to determine the buyout figure.
How do relocation appraisers adjust their numbers for time on market? Typically, the relocation company will ask the appraiser to provide a price that is based on a sixty or ninety day marketing time. The appraiser may use one or two methods for predicting a price that will get the home sold within that shortened time-frame.
Forecasting days on market using the absorption rate. Absorption rate means how many months supply of homes like yours is currently on the market. For example, if 36 homes like yours sold in the last 6 months, divide 36 sales by 6 months to arrive at an absorption rate of 6. If there are 60 active homes like yours on the market, divide 60 active listings by an absorption rate of 6 to determine that there is a 10 month supply of homes like yours. The relocation appraiser would discount your home price by 1/2 to 1 percent per month for each month over the 60 or 90 day target.
Adjusting for market change. Another tool that the relocation appraiser uses to adjust his numbers is an analysis of market change. Determine the average sales price and home size for homes like yours in the last six months. Compare these numbers with the average sales price and home size from the previous six months. If there is a drop in the average sales price in the most recent six month period, then the appraiser is likely to make another 1/2% per month adjustment in your appraised value.
Relocation appraisals can be brutal as every transfering employee with a corporate buyout knows. The previous paragraphs show you why. Even if you are not subject to a transfer, using these forecasting tools can help give you a more realistic picture of correct pricing and days on the market for your property. In a downward trending marketplace, simply looking at closing prices from four or five months ago is not enough to correctly price a property.