By Jim Haisler, Chief Executive Officer, Heartland REALTOR® Organization
As a 25-year industry veteran, I do a lot of training with real estate agents, whether it is teaching continuing education courses, facilitating new member orientation or a simple conversation at a mixer. Oftentimes, I hear agents talking about average sales price. I hate that stat. Frankly, it’s rather meaningless, except for sitting in front of a seller at their kitchen table, of course. But it is far too broad to be a good trend line. Even the county stats that my organization provides to its members are broad, but of the 12 stats we publish monthly via MRED and InfoSparks, there are two I really like: percent of original list price received and month’s supply of inventory.
Percent of original list price received (“percent”) is a measure of how much the seller received for their property as compared to the contract price. In my opinion, this is one of the two best gauges of how the market is doing. I have long contended that a “balanced market” runs at about 96%. For example, if a seller listed their property for $225,000 and accepted a contract at $216,00, the percent would be 96%. In my estimation, the seller got a fair deal and the buyer also received a fair deal. When the average percent falls below 96%, then it would be a buyer’s market, and likewise, above 96% would point to a seller’s market. So, what would we call May, June, July and August 2021 in McHenry County, when the stat was over 100% each month? “Spicy hot?” By the way, through November 2021, the county stat for the year averaged 99.7%.
Month’s supply of inventory is also known as the absorption rate. In short, it is the rate at which properties are coming on the market as related to how quickly they are selling. Think of a bucket with a hose pouring water into the top of the bucket (new listings), and there is a hole in the bottom of the bucket letting water escape (properties going under contract). How long is it going to take for the bucket to empty? That is the absorption rate (“rate”). Obviously, this is theoretical, as the bucket is likely never to actually run empty, since new properties, in theory, will always be coming on the market. That is, the hose is always at least “dripping.” This stat gives us a timeline for the market, factoring in the two key elements of supply and demand. I suggest that a “balanced market” is reached when the rate is four months. A higher number suggests a buyer’s market, whereas a lower number would be a seller’s market. Again, let’s use McHenry County stats for our example. 2018 and 2019, “normal years,” showed average rates as 3.3 and 3.4 months, respectively. 2020, an atypical year, showed the rate coming down, with a 12-month average around 2.5 months. And 2021 dropped to (insert drum roll) 1.1 months! That’s about 4.5 weeks, or “spicy hot.”
Digging just a touch deeper, when a client asks an agent, “What’s the best time to sell my house?” do you tell them the spring market? Stats might prove you wrong. Let’s check the rate sheet. In 2021, the months with the lowest rates were December, January, February and March. And for 2018 and 2019? December, January and February. Makes sense to me, as many sellers think they should wait for the spring market. Maybe not so.
Lastly, the reason I love these two stats so much is twofold. One, they are accurate and a great trend line/indication of where the market is heading (although no guarantee, as 2020 showed us). Two, hardly any agents know how to talk about these statistics. I teach agents to use these two in their conversations with clients. Not only will it enlighten the public, but it sets the agent apart as an industry expert. MRED trainers are happy to help you learn how to pull this data that you already have available to you.