Reading the Tea Leaves

We know it’s still December, but the spring market is quickly approaching. As a matter of a fact, this December has been our busiest one on record. Bidding wars in the Fan, million dollar sales, and agents who are way behind on shopping is what December has looked like for Home Sweet RVA and all of One South Realty.

We are already seeing, earlier than years past, the expected spring rush occurring in December as buyers attempt to beat the competition. And with these signs, we are expecting more of the same come actual spring, with continued competitive bids, escalation clauses, and frustration as too many buyers chase too few houses.

Predicting Pricing

So how can you tell what pricing is going to do?

The Multiple Listing Services (MLS) is the primary resource for housing information.The vast majority of real estate transactions end up in the MLS, making it a powerful tool for valuation insights. But one of the thoughts we always keep in our head is that those are historical numbers, and their ability to predict the future is limited.

And that’s what we’d all like to be able to do, is predict the future.

Understanding MLS

While MLS allows for 9 different statuses which describe the availability of a specific property, there are generally 3 that matter most: active, pending, and sold.

ACTIVE means the property is currently being offered for sale. PENDING means that a buyer and seller have come to terms but that the deal hasn’t been closed. At this point, only the involved parties (in theory) know the terms of the transaction. SOLD means the property has transferred and the price and terms are now public knowledge.

The ability to search the MLS by status can provide valuable intel about where the market is and where it is heading.

The pending statistics are the ones that are truly valuable. But in most instances, that information is kept in confidence until at least a month—and sometimes longer—after the official close.

That said, there are ways to get info.

Sales are Seasonal

There are undeniable patterns over the course of the year in real estate.

As the weather gets warmer, absorption rates start to scale higher and continue to do so until the mid summer or so—let’s say June or July. With a few exceptions, about 60% of a year’s sales will happen during the first six months. And the four-month period starting with March will see about 40% of the entire year’s sales (or maybe even more in 2018!)

Because so many sales occur in a truncated period, we know that buyers and sellers are making their decisions without the benefit of all the pending sales occurring around them. But that doesn’t mean there aren’t steps we can take to determine trends.

What We Can Tell

When a property’s status changes from active to pending, the MLS provides information on only the agent who sold it and the date the contract was agreed upon. So when the property pends, we know exactly how long the property was on the market.

Logically, this stat is called ‘Days on Market’ and measures the time between when the property was brought to the market and when it went under contract.

This is a very important number. The longer a property sits on the market the less the seller is likely to get against the ask, and vice versa. Sellers are going to give a bigger discount the longer their property has sat on the market.

Applying the Data

March (and even February for that matter) is not a great month to get data for a potential property sale. Why? Because we still don’t know exactly that the home sold for. But you might get some truly helpful information if you know what to look for within the pending inventory. It can really help you develop a strategy for selling a property.

If you are trying to to use September or October sales to determine February strategy, you are not going to make the correct decision about where the market actually is. You might decide to still make your offer based on those sales, but in most cases, it will fall short of where others are bidding. So just be cognizant that sales in the past simply tell you where the market was, and not where it is…

So what’s the message here? The industry is about to see a big up-turn in activity. Pricing of homes on the market right now is not reflective of what it will be in just a couple short months. So now is the time to prepare, chat with your realtor, look at the statistics, and be ready to beat the competition when you find that perfect home. Because trust us, there will be plenty of competition.

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