How To: Answer the Questions "How is the Market?"

It's very important to understand how to read and present the market to prospective buyers & sellers. You'll commonly hear, "How's the market?" and you must speak intelligently to that question using hard data. A bad/lazy agent will regurgitate what they've heard on the news. A great agent will be able to explain how you determine "how the market is".

Here is a PowerPoint presentation

Here is a great chart to reference

t's important to understand that real estate is local. While it's interesting & informative to talk about the Austin market as a whole, the sub-markets in Austin will all perform differently. A $600k home in central Austin is in a very different market than a $600k home in Hutto. How do we quantify the difference?

• Absorption Rate: This tells you how many homes per month have sold in a given sub-market over a period of time. On its own, absorption rate tells you nothing, but it's used to calculate Inventory. Absorption Rate = # of Homes Sold divided by Period of Time. If 45 homes have sold in 3 months, the absorption rate is 15 homes per month.
• Inventory: This tells you how long it would take for all active homes to sell in a given sub-market. If there are 60 homes on the market and the absorption rate is 15 homes per month, then there are 4 months of inventory on the market. If there are 0-3 months of inventory, it's a seller's market. If there are 3-6 months of inventory, it's a balanced market. If there are 6+ months of inventory, it's a buyer's market. The lower the # of months of inventory, the stronger the seller's market. The higher the # of months of inventory, the stronger the buyer's market.
• Median Days on Market: This is how long a seller should expect to have an executed contract on their home if they price the property appropriately. In general, a seller should consider a price reduction if they are on the market for this length of time without an executed contract or very strong interest in the property.
• Average Days on Market: This is how long, on average, sellers in a market wait to execute a contract on their home. This averages in overpriced sellers. If a seller wants to price their home high, it will likely take this long (or longer) to sell the property.

How to Define a Market/Sub-Market

We will assume that you have already run rough comparables for a specific listing in order to evaluate the market. After looking at rough comparables, you will identify a broad market. There is no definitive guide to defining a market, but you will be able to make assumptions in order to define the market. Here are examples:

• If the home is in Steiner Ranch (MLS Area RN) and the median of rough comps is $500k, then you can define the market as "MLS Area RN / Price = $400k to $600k" or you could define the market as "Subdivision = Steiner Ranch / Price = $400k to $600k".
• If the home is in Barton Hills (MLS Area 7) and the median of rough comps is $900k, then you can define the market as "MLS Area 6,7 / Price = $800k to $1M" or you could define the market as "MLS Area 6/7 / Polygon to include Barton Hills, Bouldin, & Travis Heights / Price = $800k to $1M".
• If the home is in Circle C (MLS Area SWW) and the median of rough comps is $600k, then you can define the market as "MLS Area SWW / Price = $500k to $700k" or you could define the market as "MLS Area SWW, SWE / Subdivision = 'Circle C' / Price = $500k to $700k".

Finding Market Statistics on Matrix

It's important to understand the concept of statistical significance. While we generally don't look at medians/averages when running a CMA, we do want to look at these numbers when evaluating the market/sub-market. In order to be statistically significant, we want to have at least 25 sold properties in any dataset. If you have more than 300-400 sold properties in your search, you probably have defined it in too broad a search.

1. Run a search using the sub-market definition above. Look at Active, P/PB, & Sold properties for the past 90 days. If there are less than 30 sold properties, then extend to 180 days. Move further back in 3-month increments until you get a statistically significant dataset.

2. Select all properties and click on "Statistics / Tabular"

   

   
   
3. Select "Status" from the top left drop-down & "Print". Print to pdf and save to a folder for the property.

4. Calculate & record the Inventory, Median DOM, & Avg DOM.