One of the most common questions that luxury home sellers ask is “How fast should my home sell?”
Beyond the price and condition of your home, how fast your home will sell depends on market conditions—specifically absorption rate and days on market. Understanding these indicators will give you an idea of how much activity to expect once your home goes on the market. There’s also a distinction between “now” buyers and “new” buyers to keep in mind. Knowing which type of buyer to focus can help your home sell quicker.
Absorption Rate: Predicting How Fast Your Home Might Sell
Absorption rate is a common tool used to get a feeling for how competitive the market is, specifically for a home like yours. As lovely as your home may be, to a buyer your home is one of many choices. There’s always a supply of similar homes available. Of course, these homes are not necessarily the same as yours, but they might have a similar square footage, location, price point, golf course frontage, views, amenities, etc.
In essence, absorption rate is a rough measurement of supply and demand. When you calculate absorption rate, the result is a length of time (in months) that it will take to sell current inventory. A buyer’s market has eight months of inventory or more, while a seller’s market has four months of inventory or less. Anything in between is considered a balanced market, which doesn’t favor either party. See the examples below (done with easy math) to understand how absorption rate is calculated.
If there have been ten sales in the last ten months, that’s one sale per month. So, if you’re seeing about one sale per month and there are currently ten homes for sale, that’s an absorption rate of ten, meaning there’s about a ten-month supply of homes on the market. In this scenario, the market is a little bit softer, so selling your home is going to be more competitive. This is a buyer’s market.
If there are about two homes selling per month and ten available, you now have a five-month supply of homes on the market—a big difference. In this scenario, the market is definitely much stronger, but it’s still not a seller’s market. Here, the market is considered balanced or neutral.
If there are three homes selling per month and ten available, you now have just over a three-month supply of homes—a seller’s market!
Clearly, absorption rate is worth looking at to help you understand how competitive you might need to be. The key here is to calculate absorption rate based on comparable homes sold over a recent timeline in your specific location. At the Rob Jensen Company, we report absorption rates in the Las Vegas area every month in our newsletter. To make sure we’re offering the most relevant and helpful data to our clients, we break the absorption rates down by different price points within the local guard gated market.
Days on Market
Another statistic to consider is how many days competing homes have been on the market. Look at the comparable homes that sold in your area, then find out how quickly they sold. More importantly, look at how quickly they sold once they were priced correctly.
Sometimes homes sell for top dollar shortly after they are listed. Other times there’s a price reduction involved before you get a sale. You might have noticed a home sitting on the market for a year or more. When you look at the price history for homes like these, you’ll often find that the home sold quickly after a price reduction or two.
The home mentioned in the chart below featured a desirable modern design with loads of upgrades and high-end finishes. All things considered, it was in top condition. We marketed the property extensively using targeted video and print campaigns. In the first few months, we had 12,970 video views (3,644 on YouTube, 6,320 on Facebook, and 3,006 on Instagram). Using our monthly newsletter, we shared the listing (complete with high-quality photos and professional copywriting) with 11,558 locals living in guard gated communities. We also sent it to 3,917 targeted subscribers on our email list.
Once the clicks and calls started rolling in, we showed the home to six interested buyers—but no one made an offer. Why is that? In real estate, if the marketing is done right, the home is in great condition, and you’re still not getting offers—then it’s time to take a closer look at the price. After this home sat on the market for almost three months (83 days), we sat down with the sellers and decided to lower the price. Once the home was priced correctly, it went under contract in just 25 days!
When you figure out the right strategy and your home hits the market, you should have activity in the first one to three weeks, regardless of what price bracket the home falls into. If you’re not garnering buyer’s interest during this peak traffic period, it might be time to reconsider your strategy.
Two Types of Buyers That Look At Homes
A “now” buyer is someone that has been looking for a home for a while—the last couple months to the last year. They’re usually more educated in terms of the market. They understand pricing, and they may have even missed out on the perfect home, either because they were outbid on a property or they didn’t get their offer in fast enough. “Now” buyers are further along in the buying cycle, have more motivation, and are generally ready to pull the trigger.
For properties with features or amenities that warrant top-tier pricing, sales price records are made in the days or weeks following launch. When your home hits the market, you’re tapping into a pool of “now” buyers. How big that pool is depends a lot on your price point. The higher the price point, the thinner the market. Whether you have 100 or 1,000 potential buyers, when you go live on the Multiple Listing Service and the home hits the market, making the most of that grand opening is critical. You generally don’t see homes sitting on the market for three or four months and then selling for full price.
On the other hand, there are “new” buyers. These buyers are newer to the market and are generally two to ten months out from being ready to buy. At this stage, they’re still deciding what part of town they want to live in. This is especially true if they’re moving from out of town. Though it will happen eventually, waiting for “new” buyers to get educated and mature into “now” buyers is a mistake. Regardless of your financial ability to hold onto your house, sitting on the market doesn’t help unless the market is appreciating. If none of the “now” buyers are biting in the first few months (in general; remember to look at days on market and the absorption rate specific to your property), this could be a sign of a bigger issue. It could be marketing, it could be condition, or it could be price.
How Fast Will Your Home Sell?
When it’s time to sell, understanding market conditions will help you make the correct decisions before launching. Take the above concepts into account when establishing your selling strategy, and you’ll be one step ahead of the competition. Ultimately the timeline for your home sale comes down to your game plan and your goals. At the Rob Jensen Company, we make sure to do the market research for each specific property ahead of time. That way, we can bring this information to the table when it’s time to discuss selling your home and meeting your price and timing goals. If you have any questions, we’d be happy to help. Contact us today!