Compelling Proof of Pricing

January 2020

Happy New Year and welcome to our January newsletter. This month, I wanted to offer you some important information on how the number of days a listing stays on the market impacts buying and selling strategies. Understanding how long it takes for a home to sell is crucial to maximizing value in negotiations and in making sure you close on the home you want.

Everything You Need to Know About Days on Market (DOM)

Days on market (DOM) measures the total number of days a listing remains active before the seller accepts an offer. Typically, a low DOM signals a strong market favoring sellers, and a high DOM indicates a weak market that favors buyers, although average DOM varies by market. For example, homes generally sell faster in West Coast markets than in Midwest markets.

In California, the median DOM for single-family homes at the end of 2019 was 25 days. That’s down three days from the end of 2018, which indicates the market is moving faster than it was a year ago. Below is the average DOM data for December. Average days on market in San Francisco was 31 days, down from 37 days in December 2018.

DOM is important because buyers and their agents use it as a general measure of which homes are new to the market or “fresh.” Homes typically generate the most interest in the first few weeks on market (or, in fast-moving markets, during the first few days). Fresh listings are perceived as having a lot of potential value since they’ve only been seen by a handful of buyers.

Once a home has above-average DOM, it is considered stale – a negative perception that only gets worse as homes spend longer than 30, 60, and 90 days on the market. In this scenario, buyers generally assume:

The seller is becoming desperate to sell and may accept a lower offer
The seller is asking significantly more than the home is worth
There might be something wrong with the home that caused other buyers to pass it up

Sellers can rely on various strategies to ensure their property doesn’t become stale. One of the most important is pricing the home at fair market value from the outset.

Local Market Price-Reduction Analysis

The chart below shows how common price reductions were in San Francisco over the last two years.

After several price reductions, a listing can become so stale that it makes sense to withdraw it from the MLS and relist it after a certain period of time has passed. However, this strategy is often successful because it’s common for a home to sell soon after coming to market as a “new” listing.

How Status Changes Impact DOM

Remember that DOM measures the total number of days a listing is active before an offer is accepted. Once that happens, the escrow process begins. The home is in escrow while financing is secured, inspections are conducted, the title is obtained, and so on. Escrow ends when the buyer gets the keys to the house after the close of sale.

Accepting an offer and moving to escrow pauses the DOM count and changes the home’s status from “active” to “pending”. For example, if a home listed on January 1st goes into escrow on January 15th but falls out of escrow 60 days later on March 15th, the property will come back on the market with a DOM count of 15 days (i.e. only the days it was on the market prior to escrow). The status also changes back to “active,” meaning the house is no longer under contract.

DOM Difference Between Homes With and Without Price Reductions

Average DOM also differs depending on the number of price reductions a home has undergone. This may seem obvious since homes that sell quickly don’t need price reductions. However, the data below is worth noting because it shows just how significantly DOM is impacted when a home is priced too high.

Homes with price reductions spent almost three times as long on the market for single-family homes and over twice as long for condos. This is compelling proof of the importance of pricing a home to sell the first time it’s listed.

Conclusion

We hope you found this info in this month’s newsletter helpful. Should you have any questions about the market, or wonder what home-improvement projects will give you the biggest bang for the buck, I am always just a cell phone call away: (415) 595-7661.

Cheers,