Thoughts About Days on Market and Phoenix Real Estate

avatarthumbnail.jpgHoward Arnoff was the first to point out my apparent change in philosophy regarding Days on Market and how much weight (if any) should be attached to that particular statistic when negotiating in the Phoenix real estate market.

Here’s what I’ve said in the past:

Days on Market is an inexact indicator, to say the least. Yes, a high DOM can be indicative of a desperate seller who needed to sell two months ago and will do almost anything they can to be rid of their house. But it also can be indicative of a seller who’s set on a certain price and refuses to be swayed regardless of market conditions.

Assuming the former when it could be the latter results in false expectations and wasted time on everyone’s part.

And here’s what I said most recently

Aggressive offers on homes new to the market, for example, will not be as successful as for homes on the market for a while.

… which drew this observation from Reb Arnoff:

You have always believed that days on market don’t matter and I wonder if you’ve changed your mind on the subject.

Changed my mind? No. Adjusted my perspective? Perhaps.

When I worked as a stockbroker I was accustomed to dealing with efficient markets. If emotion was a factor, it was muted through the sheer volume of shares being traded on any given day in any given security. Where the strangest things happened were on the more thinly-traded securities, where individual emotion could cause wild swings because there were so few trades taking place.

Housing trades, if you will, often are filled with emotion. Sellers aren’t looking to offload multiple shares, they’re trying to see but one – a home. Their home. And because of this emotional attachment, the market rarely works efficiently. Sellers almost ALWAYS believe their home is worth more than it is. Buyers almost ALWAYS believe the home is worth far less than asking price, or that sellers will move in a buyers’ market.

Emotions interfere with what otherwise would be the execution of a transaction within the wider scope of a fairly orderly market.

But that’s not the case with bank owned homes. As Teresa Boardman has said, banks don’t sell real estate and I can give you multiple examples where a lender has made one or more stupid mistakes in the course of trying to sell a foreclosed home.

But banks, if nothing else, are fairly predictable once you know the process. Once a home has been on the market for 30 days, the first full pricing update is sent up the chain and a price reduction is possible (if not guaranteed.) These updates continue to take place until the home sells, though not always on a simple 30-day basis.

Most lenders when presented with an offer are countering close to list price. Their overall strategy reminds me of my first date with someone about 22 years ago – she would kiss me but that’s about as far as I could get.

It’s on the second counter, should the buyer hold firm, where the fun begins and banks will often roll over, reminding me of the second date … yeah, we’ll just skip ahead here.

The odds of pushing a bank off its initial listing price in the first couple of weeks on the market are about nil. Many lenders won’t even look at offers until the fifth day a home has been on the market because they want to make sure they have a sense of what the market may bear, aside from what they’ve already been told.

So, at least in the narrow world of bank owned homes, days on market are a pretty good indicator of how much a bank would be willing to give.

But you still can’t convince me of days on market’s universal use as a negotiating ploy outside that narrow subset of homes.

[tags]Phoenix real estate, bank owned homes[/tags]

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

2 Comments

  • Charleston real estate blog 9 years ago

    Jonathan, interestingly, I showed a home yesterday that has been on the market for 1 1/2 years with consistent price reductions. Days on market doesn’t matter when a house has a bad floor plan. When it is finally inexpensive enough, someone will think it’s a nice house and overlook the flaws.

    But days on market does matter in one very important way and we’re in total agreement on this. Whether a home is a foreclosure or being sold by the homeowner, if it’s new on the market, it’s very difficult to convince the seller that your buyer’s lower valuation is the best offer they will get.

    By the way, the banks negotiating tactic on the first counter that you are describing is actually very wise. An old sage once said, whoever blinks first and moves most loses. I don’t know about that kissing stuff 😉

  • teresa boardman 9 years ago

    I have said ‘banks can’t sell real estate’ and if you put that phrase in google I come up first. It is kind of sad. They can’t sell it and won’t work with the owners they just go ahead and foreclose. they lose a tom of money and then they get bailed out with our tax money . . don’t get me started. Banks can’t sell real estate.

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