Supply and Demand: Answering “Is it a good time to sell”?
Authored by OnTrack Agent Staff
What is the question that a real estate agent gets more often than not?
“How’s the market?”
Real Estate Agents who get VERY clear on the answer to this question will do more business this year. It’s really that simple.
The geeky details around this question are really about supply and demand. It’s about understanding two very fundamental statistics in your MLS market trend reports. Let’s review them.
Months of Inventory (MOI)
Months of inventory is the rate of absorption in the marketplace. Put simply, the number represents the amount of homes on the market (supply) versus the time it will take for them all to go pending – not closed (demand), leaving 0 homes on the market. While it’s a little market dependent, a neutral market between buyers and sellers is an MOI of 4-6 months.
An example:
Let’s say your report says Median MOI = 3
That means, in that moment in time on the market, if not another home was listed, it would take 3 months for all the inventory to be bought.
How to rationalize this data:
When speaking with your client about how the market is, what they really want to know is, how strong or weak it is and should they make moves. In this example, an MOI of 3 means there are three months of inventory, which in most markets would represent a seller controlled real estate market. ie. It’s a great time to sell!
Pro Tip: If you have investors in your database, an MOI of 1 or 2 is a really great phone call to make! “Hey Bob, I was doing some research around your rental on ABC street, in that area specifically you’re in a high demand seller controlled market. You’d get top dollar from the market at the moment if you were thinking of a 1031 exchange. You bought around x dollar amount, so I think we could move your equity into two units if that’s interesting.”
Darys on Market (DOM):
Another fabulous indicator of supply and demand for real estate agents in the data around DOM. This is calculated by the number of days it takes for a listing to be put active on MLS and then be marked pending (not closed).
An example:
Let’s say your report says Median DOM = 13
That means it will take a median of 13 days to go pending once a home is put on the market.
How to rationalize this data:
When answering the question “How’s the Market?”, understanding the concept of supply and demand is imperative. In this example, the Days on Market (DOM) is 13, indicating that it will take less than two weeks for a listing to go pending. This suggests a strong demand relative to supply, making it a great time to sell.
Pro Tip: Several factors influence whether your client will meet this median DOM statistic. Appropriate fair market listing pricing, along with proper condition and staging, are crucial. Guidance in these areas is one of the most important jobs of a quality real estate agent, particularly when navigating supply and demand dynamics.
By grasping supply and demand, you can incorporate this knowledge into regular conversations, demonstrating your expertise to clients. As real estate agents, we are immersed in the supply and demand currents of the market every day. This understanding shapes the advice we provide to our Sphere of Influence (SOI) on next steps.
When prospective clients are ready to wade into the river of real estate, they trust us to guide them based on how fast the water is moving, a direct reflection of supply and demand conditions. Be a student of supply and demand, and watch your sales grow!
By effectively communicating the importance of supply and demand, you position yourself as a trusted advisor, helping clients make informed decisions in a competitive market.
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