Like most industries with a long history, the business of real estate utilises a language of its own. These terms and phrases, while used regularly by agents, are often unclear to those buying or selling a home.
Within this series of articles, I’ll be breaking down some of this language to help you understand key concepts and specific terms.
To get started I’ve chosen a phrase that, while important, is regularly misunderstood by clients – “Days on Market”. You may have wondered what this means and how it might affect the process of a sale.
Starting the sales process
The phrase “Days on Market” is essentially the time that passes between the moment that For Sale/Auction sign goes up on a property to the day the Sold sticker is attached.
In the Canberra real estate market, the average Days on Market is approximately 79 days.
Some homes sell in less than 30 days, some sell at the two-month mark, some languish for many months and others are removed the market completely due to lack of interest. Then there are fluctuations per suburb. For example, in Narrabundah the average Days on Market is 65 days.
Impact on sales price
Initially, many clients don’t appreciate the influence that Days on Market has on a successful sale.
When you look at the process strategically (which is my forte), it’s clear that the longer a home is on the market, the less likely it is that a buyer will pay a premium for it. In fact, they’ll expect to pay less.
Ask yourself – if you were seeking a new home right now would you pay full price for a property that’s been on the market for five months? Probably not.
It’s likely that you’d conclude the value of the property is not realistic, having sat on the market for so long. You’d probably put in an offer significantly less than the original asking price.
The value of a strategic approach
I strongly believe that when a seller starts the process by researching the value of their property accurately and selecting a realistic price range, they’ll secure the best price for their home.
If there’s one thing my twenty years in the business has revealed, it’s that a well-priced home attracts immediate attention and intense competition. When potential buyers appreciate the realistic pricing of a newly-listed home, they act fast.
This phenomenon can obviously be used to the seller’s advantage.
Competition amongst a group of potential buyers naturally leverages the sale price in the seller’s favor.
The graph below illustrates the usual correlation between Days on Market and buyer interest (in terms of in-person inspections or online webpage hits). Generally, properties peak after the soft release when they are originally listed on the market. If a sale has not been secured in the first 4-6 weeks, interest in the property usually decreases over time as competing properties enter the market.
The sales cycle
In this regard, the real estate market can be easily compared to our retail sector, where an early sale guarantees maximum profit. Think about your favorite new car model, shoe style or homeware product. When they first hit the market they are priced at a premium. Return to the store a few months later and you’ll often find them discounted as new stock takes pride of place.
If you’re about to select a real estate agent, it’s always worth asking about their current Days on Market and List to Sell Ratio.
What are some of the confusing or mysterious terms that you’ve heard used in the real estate industry and would like explained?
Cory McPherson is the Director of Capital Residential, one of Canberra’s
premier boutique real estate agencies. With more than two decades’ experience in the
ACT property market, Cory is well known for his strategic approach to property sales.
See his latest insights, listings and sales results on LinkedIn, Facebook and Instagram.