Evaluating Homes using Days on Market

While I’m looking at a house, and I want to know if it is priced correctly, the first statistic I look at is DOM or Days on Market.

I can’t think of a better metric for measuring if a home is over or underpriced than this, however it has to be considered carefully.

Every market has its own Days on Market statistic, but this can be broken down into lots of different sub categories.  Not only do you have to look at it for each neighborhood, zip code, or school district, but I also like to look at DOM for different pricing regions.

Three Real Estate Market Levels

I like to segment my market into 3 categories.  Foe easy understanding let’s call them low, middle, and high, and each is defined by the pricing of the homes in that segment.

Starting from the top, they high level – this is the Luxury Market.  High-end homes.  Each area has a different threshold for high end homes, but in Austin, the MLS defines them as anything over $750,000.  Typically the Days on market for these homes is longer than the average, but in some popular areas the DOM for Luxury homes can be very short.

At the middle end, which is not well defined by my MLS are what I call move up homes.  They are less expensive than the high-end houses, but more expensive than homes for first time buyers. Typically they range from about $350K – $750K or so in the Austin market.  They are houses that might require two good paying incomes to afford, or a 2nd home that a family will buy after selling their first house for something bigger or nicer.  Homes in this price range typically have average Days on market, but as with all things there are exceptions.

Finally, and the lower end of the market are the homes that are $350,000 or less.  There are, in my mind, 3 primary groups that buy these homes – first time home buyers, flippers, and investors.  This level of the market is very competitive, and often sell very quickly (and with multiple offers).  As you can probably guess, these houses have very short days on market.

DOM vs Multiple Offers

So, as I’m analyzing a house, and I look at the DOM value, and compare it to the price.

Let’s say this is the first few days the house is on the market.  When I go to visit it there are a few Agents standing around with their clients (a line to get in to see the place).  On various websites it is labeled a HOT home.  The photos look good, and for the are the price seems OK – but we need to make sure.  It obviously has a low value for days on market, and is getting a lot of attention.  When I reach out to the selling agent I learn there are a few offers already in, and a deadline for offers to be submitted.  Regardless of how the house is priced, it is popular, and will sell for asking price if not more.

This often happens in deep seller’s markets where there isn’t enough inventory for all the buyers out there.

When I pull the comps for the area, I see that most homes like this one have sold in less than a week.  As I dive deeper into the data I see that the average sale price is higher than the list price by a few percent.

The low DOM in this case means over asking price is needed due to multiple offers.

I don’t have an issue with this, as long as the numbers make sense for me.  If the rent still covers the mortgage, then we are good. We are actually double good, because this area is appreciating very quickly and you can bet that this house will be worth more in 6 months.

Longer DOM

Now, at the other end, if a house has a very large DOM, I’ve learned that there can be a couple of things happening.  First it is either overpriced, or was overpriced, but also it could have significant problems.

With all the different on-line tools, it is very easy to look up what the starting price was when the house came on the market.  Overpricing is the kiss of death.  Homes that are overpriced, typically take longer to sell, and can be an opportunity for a deal, if the seller is tired of waiting.

I like to look for longer days on market because I se them as an opportunity to make a low offer, and either get a deal, or start a conversation about a more realistic price.

D.O.M. vs C.D.O.M.

Finally there is another similar MLS term called CDOM – this stands for continuous days on market and is used when a home has been listed before, perhaps by a different agent.  This number is always higher than DOM, but has to be looked at in coordination with the price to see if its a good deal or not.  Typically CDOM or DOM resets after 60 days of not being listed in the MLS.