Marshall Park is a real estate broker at Redfin in Virginia who writes an occasional column on the local real estate market.
Thanks to the Internet and technology, consumers have real-time access to real estate data. Information that was once under lock and key of real estate agents is now freely available to anyone with Internet access.
Home buyers can receive a smartphone alert the minute a new listing hits the market in their search area. Home owners can closely monitor neighborhood trends to see how quickly homes are selling and estimate how their home’s value may be evolving over time.
Accessing data has never been easier, which has empowered consumers and enabled them to better educate themselves. The challenge for people today is not accessing information, but instead sifting through everything that is available and correctly interpreting that information. So in the world of big data, what data is the most useful? Below I’ve outlined the statistics that are the most insightful as well as some data that can be misleading and easily misinterpreted.
The No. 1 question realtors are asked is “how’s the market?” If you’d like to find out for yourself, the statistics I recommend are months of supply, sale-to-list ratio and median days on market.
• Months of supply is a calculation of how many months it would take for all of the current homes on the market to sell if no new homes came on the market. It shows us how inventory relates to demand and is a key indicator of whether buyers or sellers have the upper hand in the current market. Four to five months of supply is average. If the number is smaller, this is an indication of a sellers’ market: There are relatively few sellers with more buyers competing over available homes. The higher the number, the more buyers are favored in the market — meaning there are lots of homes to choose from, and buyers have more negotiating power.
You can calculate the current months of supply by dividing the total number of homes for sale by the number of homes sold in one month. You can find this data on numerous Web sites, including Redfin.com. For example, consider you are exploring the market conditions in Cleveland Park for single-family homes. Set your search for active listings in Cleveland Park and narrow it by single-family homes.
Let’s say you find there are currently four single-family homes for sale. Now adjust your search to sold homes in the past month, filtered for just single-family homes. Three single-family homes sold in the past month. Quick calculation of four divided by three, means that there are only 1.3 months of supply for single-family homes right now. If you are thinking about selling your Cleveland Park home, now would be a smart time. If you are looking to buy in the neighborhood, prepare yourself for some stiff competition.
I also recommend calculating the rate of sales over a longer period. In Cleveland Park, 34 single-family homes sold over the past year. Dividing 34 by 12 months tells you that homes are selling at an average rate of 2.83 per month. Take the four homes that are for sale now and divide by 2.83 sales rate for the past year and you’ll get 1.4 months of supply – not far off from the 1.3 months of supply when just looking at the past month. This shows you that 1.3 is not an anomaly. Inventory has been tight for the past 12 months, and the market for buyers may be getting even more competitive.
You can calculate months of supply based on your personal search criteria, such as condos between $400,000 and $500,000 within a specific Zip code. This will give you an understanding of the current amount of inventory and level of competition for the homes you are interested in.
• Sale-to-list ratio looks at how the price the buyer paid for a home compares with the price the home was listed for. If it’s above 100 percent, the home sold for more than the list price and below 100 percent, the home sold for less than the list price. Looking at sale-to-list percentages can help buyers and sellers get a sense of how to negotiate on pricing. To calculate the average sale-to-list for a group of homes, add up each home’s sale-to-list ratio, then take the average of the total. A home with a high sale-to-list ratio may have had the price escalate in a bidding war. In some cases, the seller may have strategically decided to price below market value to draw buyers in and create a bidding war.
• Median days on market is a quick and helpful figure for determining the speed of the market. It is the length of time that homes were on the market before going under contract with a buyer. Redfin provides this data every month as part of our national market tracker report. If you have trouble finding this statistic, your agent should be able to provide the median days on market for the area you are looking in.
When evaluating the estimated value of a property — either your own or one you’re considering purchasing — beware of relying too heavily on tax assessments, computer-generated estimates and price per square foot calculations.
• The county tax assessment should not be equated with market value of a property. There are many reasons that the assessment may be inaccurate. County assessors typically do not enter the home and rely on the public records and an exterior visual review to make a general estimate of value. They do not often reassess the property each year. The county records for the home may be incomplete or outdated. Assessments are not always updated in a timely manner to take account of renovation and additions.
• Computer-generated estimates and valuations are often off-base, yet many potential buyers and sellers treat estimates like the “Zestimate” as a hard appraisal of market value. Computer algorithms can crunch numbers and churn out an estimate, but they lack the ability to weigh all the factors that can significantly influence valuation, including a home’s curb appeal and charm, view, location and school district. Post Real Estate columnist Kenneth R. Harney’s article earlier this year on Zestimates explored this topic in detail. While it’s fine to use these types of valuations as a starting point, keep the margin of error and in mind.
• Price per square foot is another factor that can vary significantly and should be taken with a grain of salt. Two similar homes can have quite different price/square foot, and some buyers put too much weight in the calculation when determining an asking price. There are two reasons this is a dangerous strategy. First, square footage can be inaccurate. Basements and rooms that are below grade are not counted in total square footage. A home with a nicely finished basement may have a high price/square foot because the list price reflects the usable basement space, but the basement’s square footage is not included in the calculation.
Similarly, a home with high-end finishes, a stunning roof deck, parking or a stellar location will have a higher price/square foot than a home without these features. Price per square foot is typically the most helpful for condo buildings or newer builds in which the age, layout and features of the units are similar.
Finally, agents can share a lot of information and data about the local housing market, but keep in mind that there are a few areas that we are prohibited by law from discussing, including area schools, demographics and crime. But just because your agent cannot discuss these factors does not mean that you might not find this information important in your home search. There are a lot of great resources to help consumers assess the external factors of a neighborhood.
GreatSchools.org provides rankings of both public and private schools. CrimeReports.com is a great resource that provides a map of reported crimes. Users can search a specific address and see the crimes that have been reported in the vicinity. People have different thresholds for crime and community safety, and this puts the information in your hands to make the decision that works for you.
WalkScore.com assesses neighborhoods and properties based on walkability and the proximity of amenities, such as grocery stores, restaurants, parks and other services. If it’s important to you to live in a walkable community, this is a great resource. WalkScore also provides Transit Scores and Bike Scores that make it easy to see how car dependent is an area vs. the accessibility of alternative transportation options.
Thanks to the plethora of resources and data available online, it’s never been easier to become a real estate market expert. Armed with the right data, you can better prepare yourself to buy or sell and feel more confident about your decisions. And remember that agents are available to help you interpret the trends, guide you and answer any questions along the way.
Catch up on Marshall’s previous columns: