Written by Tammie White, Principal Broker/Owner of Franklin Homes Realty LLC
Today, I read a Franklin TN market report that was written by a local agent. In that report, the agent stated that days on market (DOM) determine whether we are in a buyer's market or a seller's market. That simply isn't true.
Buyer's market? Seller's market? Absorption rate determines Franklin TN housing market conditions, not DOM. The absorption rate signifies how long it will take to sell the existing homes on the market based upon the most recent sales data. Or how long it will take for the active listings to be absorbed by buyers.
Absorption rate is determined by using a simple mathematical equation. Take the existing housing inventory and divide it by the most recent month of closed sales. As an example, there are currently 768 active listings in Franklin. Take that number and divide it by the most recent month of closed sales (July 2014) which is 238 (768/238). That number equals 3.2. That means at the current rate of sales, it will take 3.2 months to sell the existing housing inventory in Franklin.
The next question: Is 3.2 months a buyer's market or a seller's market? Anything under 5 months of inventory is considered a seller's market. A normal or steady market is 5 to 7 months of inventory and a buyer's market is anything in excess of 7 months of inventory.
Do the days on market (DOM) matter? They do but they don't determine whether your area is in a buyer's market or a seller's market. Let me explain.
We produce many market reports every month for Franklin neighborhoods. We do this to give sellers an indication of how long we believe it will take to sell their house if we've priced it right and properly prepared it for market.
Let's take a recent market report prepared for Cedarmont Farms. As you can see, Cedarmont Farms is experiencing an extreme seller's market. However, the average days on the market were 107 Days. How can it be that Cedarmont Farms is in an extreme seller's market and has so many DOM?
1. At the time of this report, there wasn't any existing housing inventory and the most recent month of sales, suggested that buyers were interested in buying in this neighborhood. Since there is less than 5 months of inventory, Cedarmont Farms is in an extreme seller's market (less than 2 months of inventory).
2. The DOM indicates that one house was on the market for more than 300 days. How can that be if Cedarmont Farms is in an extreme seller's market? This 300 days suggests that the house was overpriced when it came on the market 300 days ago. This seller reduced the price to finally get it sold. That's why the average sales price to list price ratio is lower than most neighborhoods experiencing an extreme seller's market in Franklin right now. The house was priced too high from the beginning.
All of these numbers work together to help sellers determine a good listing price if they want to sell their home in 30 days or less.
Absorption rate determines Franklin TN housing market conditions, not DOM. Not all market reports are created equal. Make sure the Franklin housing data actually supports the claims made about the current housing market.
When you are ready to sell your Franklin home,
Call Franklin Homes Realty LLC at (615) 495-0752!
About Tammie White, Franklin TN REALTOR®
Tammie White is a REALTOR® and Principal Broker/Owner of Franklin Homes Realty LLC in Franklin TN. Tammie works with relocation buyers looking to purchase a home in Franklin and the surrounding Williamson County area. She understands the way buyers search for homes making her an invaluable asset to Franklin home sellers. Tammie's website, www.FranklinHomesRealty.com, has become the premiere search tool for buyers relocating to Franklin TN. She has been writing a real estate blog since 2009 and quoted in various publications including the LA Times, Skype.com, The Tennessean and Williamson Source.