Matthew Ferrara, Philosopher
 

The Real Meaning of Days on Market

is a tricky business. At some point, you’d expect things to “mean” what they say. Yet we’re an industry that can’t even decide what exactly constitutes a “bedroom.”  In some markets, it’s a broom closet; others extend the definition to unfinished attics. Of course, small dens and breakfast nooks in big-city condos qualify as bedrooms as long as a curtain divides them from the next room. Funny stuff, but it gets more serious when you try to apply these definitions to market data. If we can’t decide what certain market data means, how can we plan a business strategy around it? When current listing prices are sketchy, foreclosures skew sold data and “for sale by owner” inventory makes it impossible to determine meaningful absorption rates, wouldn’t it be nice if we could just pin down the meaning of something simple – like “Days on Market”?

Ironically, even that market metric is sorely misunderstood.

Try this exercise at your next office meeting. Ask the agents to define what “days on market” means. Twenty agents will likely yield twenty-one answers. Even if we narrow the question down to, “What does days on market mean for sold properties?” proper definitions elude us. For example, in some cases, agents will argue that there’s a “current” and a “real” days on market because MLS rules differ from market to market. In some systems, MLS calculates only the days on market since the property was last listed as “active” in the database. So if a home was listed for six months, expired, re-listed with another agent for three days and then sold it could have a “current” days on market of three. Purists say that you should count the “total time” trying to sell it, even if the property changes brokerage hands, within a window of one or two years.

No matter how you slice it, the argument seems to revolve around how long it took a home to sell. Plenty of hairs can be split over how to calculate this number, but any choice would still be wrong. Because days on market has absolutely nothing to do with selling the home.

Days on market has everything to do with buying the home.

The industry obsession with listings has created a blind-spot in its ability to interpret data. Since most brokers think they must list as many homes as possible, they interpret data from the listing perspective. Remember, this is an industry that rewards agents for “most listings” and company market share according to “company listing inventory” while avoiding the cold, harsh spotlight of whether any of it actually sold (and for a profit, but that’s another story).

Yet a key performance indicator remains untapped if we only look at market data from the seller’s perspective. In fact, days on market would really be meaningless if we looked it as the total time it took a home to sell, because selling a home often has nothing to do with time. In fact, proper positioning, staging and pricing are all people problems, not functions of time. So days on market, from a seller’s perspective, might really be a measurement of “argument time” between real estate professional and consumer. Sometimes shorter. Sometimes longer.

If, on the other hand, we interpret days on market from the buyer’s perspective, we find a very useful metric for sales performance. Especially for companies focused on leads management.

If days on market really measures the time it takes buyers to buy a home, not the time it takes sellers to sell it, then we’re measuring a completely different set of market forces – one that bears directly on the prospecting and leads management challenges facing the industry. Purchase decisions are influenced by seller-controlled factors, such as price or positioning; but when the market is flooded with similar inventory that still take long to sell, days on market tells us nothing about the inventory.

And everything about the buyer.

Actually, it doesn’t make any difference WHY the buyers are taking certain times to buy. Nobody could actually measure all of the reasons. Besides house prices, conditions and locations, there are millions of reasons why buyers take certain “days on market” to pull the trigger. Economics, demographics, consumer preferences and media influence may all factor into the average time-span it takes the average buyer to purchase the average house. Still, the average days on market looks like a better measurement of buyer activity than seller activity.

Agents experience this all the time: properly priced and staged homes often don’t beat the average days on market, even in the best locations. That’s because the buyers ultimately control the process. They will buy –  when they decide to. And REALTORS can measure that by monitoring the average days on market.

Why is it important to re-interpret the true meaning of days on market? It’s critical to overcoming one of the most troublesome performance problems in the industry: Leads management. Any company that bothers to track it’s leads will tell you their biggest problem is getting agents to nurture leads for the right amount of time. That super-secret amount of time is the key to improving prospecting practices. If managers can get agents to prospect long enough to be there when the buyer is ready, then we can create more deals. Yet most prospects are abandoned after a few days, maybe a week, by agents who can’t figure out how long to keep nurturing their leads.

All brokerages suffer from this problem. There are dozens of reasons for it – poor sales training, lack of manager monitoring and just plain diva-mentality. All of which can be fixed with training, technology and coaching and accountability.

The missing ingredient, though, has always been an answer to the agent’s question: How long should I incubate a prospective customer? Managers have tried every guess: Forever. Until I say so. Until the consumer dies. None of these were satisfying to the agent. Agents don’t like “shoot from the hip” coaching from managers. They want answers. They want clear guidance.

Now we can give it to them. By reinterpreting days on market as the time it takes buyers to purchase an average home, agents know exactly how long to incubate their average prospect. The mechanism is perfect. It keeps up with booms and busts. It can be sub-divided by property type, market area or price range. Days on market can be broadly measured or target analyzed. And it will keep answering the most important question for salespeople who are prospecting for business:

How long should I keep trying?

– M

  • Virginia

    Insightful and useful information as always, Matthew. Thanks!

  • Virginia

    Insightful and useful information as always, Matthew. Thanks!

  • Interesting! I show the information to my buyer clients to educate about the market and how much competition they may have – yes, in Sudbury and west of Boston buyers do have competition. It can also help determine how motivated a seller might be. With regard accuracy – what is the saying? “the numbers don’t lie but we can make them say whatever we want them to….”

    In terms of how long to work with a buyer….real estate agents aren’t paid by the hour so the decision about how long to work with a buyer tends to be made less on data and more on behavior and attitude. As soon as I hear the words “thank you for your time”, I know they’re not going to buy from me.

  • Interesting! I show the information to my buyer clients to educate about the market and how much competition they may have – yes, in Sudbury and west of Boston buyers do have competition. It can also help determine how motivated a seller might be. With regard accuracy – what is the saying? “the numbers don’t lie but we can make them say whatever we want them to….”

    In terms of how long to work with a buyer….real estate agents aren’t paid by the hour so the decision about how long to work with a buyer tends to be made less on data and more on behavior and attitude. As soon as I hear the words “thank you for your time”, I know they’re not going to buy from me.

  • J Towner

    New Terms and Tools…same old problem…

    No Doubt, there is frustrating ambiguity in real estate sales nomenclature. Let’s consider Mathew’s question about DOM? First, I totally agree that if you asked your agents for their definition of DOM you would receive multiple answers. I would offer that this ambiguity provides an excellent opportunity to distinguish yourself in your market by defining DOM for yourself and for your company. You could define DOM as the number of days it takes for title to change hands from a buyer to a seller. This time would include the marketing time and the time it takes to actually settle on the property. So you could define Days on Market as the total time from first Sales and Marketing agreement and would include all subsequent marketing agreements to date of actual title transfer to a ready willing and able buyer. You should include any time the owner tried to sell it on their own and exclude any time when it was not actively on the market either with an agency or as a private seller.

    We could also divide this process into two times. Days to get and negotiate an acceptable offer…and Days from accepted offer to Settlement. We could calculate these within reason as we know that not all companies are as quick to update status changes as they should be but this would provide some reasonable basis for discussion with the sellers. This would be an important distinction when dealing with Short Sales.

    Once DOM has been defined we would then need to provide some price distinctions. It is not accurate to include the high end with the medium priced or lower end properties to determine “Average”. We can all see the problem with using an “Average Days on Market” without consideration of Price Range.

    We should recognize that Buyers and Sellers can have differing schedules and need to be treated differently. When your agents work with buyers, you should again set another benchmark for the buyers. This might be tricky because we do not really know when a buyer truly enters the market. We could use the date of a signed Buyer Rep Agreement, but they could have been searching on their own for some time. If we chose to we could set up our term for Buyers Days In Market as the time span from a Signed Buyer Rep agreement to actual settlement on the property. I can see where this number could be a little shaky. We could use the start date as the date we received an email contact…”lead”…but again this start date would be ambiguous as we would not be able to determine if we were the first, second, third person contacted. We could and should interview the buyers very carefully in an effort to try to determine their buying time cycle to try and get a better grasp on how long from first inquiry or even the first search to settlement. There are numbers available…but like Mark Twain said…”Statistics and other Damn Lies”.

    We also must have a discussion as what a “Lead” really is? Surely every valid email inquiry we receive is an “Opportunity”…but is it truly a “Lead”? This can prompt much debate and has. The Marketing Department will classify just about every inquiry as a “Lead” whereas the Sale Department will have a different opinion.

    Again one of the Great things about owning your own business is you can define your own terms. Not everyone will agree but that is your opportunity. As Mathew is pointing out Management of “opportunities” is critical and lacking. I would ad that you need to settle on agreement for the terms whether you re referring to Buyers or Sellers.

    What buyers are willing to pay sets the price. If we accept the responsibility of Marketing and Selling a property we must be prepared to help the Sellers Position their property to try and attract buyers who are ready to pull the trigger and buy. No doubt one of the best ways to help the sellers with this difficult decision is to have a better handle on the buyers’ attitudes and behaviors…Thus better management of “Inquiry opportunities and Leads”, which I feel are not necessarily synonymous but are real opportunities if carefully and professionally managed and our critical for success.

    Every valid email address represents and “Opportunity” to engage. Every email address represents the center of another “circle of opportunity”. How we train our agents to engage this email inquiry will be critical to our success. How we train our agents will help define “Our Way” of convincing potential buyers and sellers to work with us. If we can create an effective “Way” we will enhance our retention and recruiting opportunities.

    It was not so very long ago that teaching our agents how to handle phone inquires was a critical skill and still it. We now need to develop additional skills in learning how to engage with the “e” consumer…who is now just about everyone.

    I would submit that before the internet provided us with access to more opportunities a major failing in most Real Estate Brokerage offices was failure to follow up on inquires that resulted from printed media, sign calls, open house visits to name a few. The same agent mentality of immediacy or nothing seems to be passing along to the new tool of internet inquires. No big surprise here. The people who are letting internet inquiries fall thru the cracks are in many cases the same people who let phone inquires and others fall thru the cracks because the person making the inquiry put up a little resistance to getting together or giving out their name and the phone number. Lack of follow up and management is not a new problem…we are just dealing with new tools.

  • J Towner

    New Terms and Tools…same old problem…

    No Doubt, there is frustrating ambiguity in real estate sales nomenclature. Let's consider Mathew's question about DOM? First, I totally agree that if you asked your agents for their definition of DOM you would receive multiple answers. I would offer that this ambiguity provides an excellent opportunity to distinguish yourself in your market by defining DOM for yourself and for your company. You could define DOM as the number of days it takes for title to change hands from a buyer to a seller. This time would include the marketing time and the time it takes to actually settle on the property. So you could define Days on Market as the total time from first Sales and Marketing agreement and would include all subsequent marketing agreements to date of actual title transfer to a ready willing and able buyer. You should include any time the owner tried to sell it on their own and exclude any time when it was not actively on the market either with an agency or as a private seller.

    We could also divide this process into two times. Days to get and negotiate an acceptable offer…and Days from accepted offer to Settlement. We could calculate these within reason as we know that not all companies are as quick to update status changes as they should be but this would provide some reasonable basis for discussion with the sellers. This would be an important distinction when dealing with Short Sales.

    Once DOM has been defined we would then need to provide some price distinctions. It is not accurate to include the high end with the medium priced or lower end properties to determine “Average”. We can all see the problem with using an “Average Days on Market” without consideration of Price Range.

    We should recognize that Buyers and Sellers can have differing schedules and need to be treated differently. When your agents work with buyers, you should again set another benchmark for the buyers. This might be tricky because we do not really know when a buyer truly enters the market. We could use the date of a signed Buyer Rep Agreement, but they could have been searching on their own for some time. If we chose to we could set up our term for Buyers Days In Market as the time span from a Signed Buyer Rep agreement to actual settlement on the property. I can see where this number could be a little shaky. We could use the start date as the date we received an email contact…”lead”…but again this start date would be ambiguous as we would not be able to determine if we were the first, second, third person contacted. We could and should interview the buyers very carefully in an effort to try to determine their buying time cycle to try and get a better grasp on how long from first inquiry or even the first search to settlement. There are numbers available…but like Mark Twain said…”Statistics and other Damn Lies”.

    We also must have a discussion as what a “Lead” really is? Surely every valid email inquiry we receive is an “Opportunity”…but is it truly a “Lead”? This can prompt much debate and has. The Marketing Department will classify just about every inquiry as a “Lead” whereas the Sale Department will have a different opinion.

    Again one of the Great things about owning your own business is you can define your own terms. Not everyone will agree but that is your opportunity. As Mathew is pointing out Management of “opportunities” is critical and lacking. I would ad that you need to settle on agreement for the terms whether you re referring to Buyers or Sellers.

    What buyers are willing to pay sets the price. If we accept the responsibility of Marketing and Selling a property we must be prepared to help the Sellers Position their property to try and attract buyers who are ready to pull the trigger and buy. No doubt one of the best ways to help the sellers with this difficult decision is to have a better handle on the buyers’ attitudes and behaviors…Thus better management of “Inquiry opportunities and Leads”, which I feel are not necessarily synonymous but are real opportunities if carefully and professionally managed and our critical for success.

    Every valid email address represents and “Opportunity” to engage. Every email address represents the center of another “circle of opportunity”. How we train our agents to engage this email inquiry will be critical to our success. How we train our agents will help define “Our Way” of convincing potential buyers and sellers to work with us. If we can create an effective “Way” we will enhance our retention and recruiting opportunities.

    It was not so very long ago that teaching our agents how to handle phone inquires was a critical skill and still it. We now need to develop additional skills in learning how to engage with the “e” consumer…who is now just about everyone.

    I would submit that before the internet provided us with access to more opportunities a major failing in most Real Estate Brokerage offices was failure to follow up on inquires that resulted from printed media, sign calls, open house visits to name a few. The same agent mentality of immediacy or nothing seems to be passing along to the new tool of internet inquires. No big surprise here. The people who are letting internet inquiries fall thru the cracks are in many cases the same people who let phone inquires and others fall thru the cracks because the person making the inquiry put up a little resistance to getting together or giving out their name and the phone number. Lack of follow up and management is not a new problem…we are just dealing with new tools.