Active and Expired Listings Tell Us About The Real Estate Market
Most people are aware that appraisers look at homes that have recently sold when performing an appraisal, however there’s a lot
more to the real estate market than closed sales. By looking at active and expired listings we can gain a more complete understanding of what is going through the minds of buyers and sellers.
Active Listings
By looking at active listings we can determine several things, one of which is the absorption rate. Absorption rate is calculated by taking the number of homes that are currently listed for sale, and under contract, and dividing it by the rate of sales for a given period. This figure will tell you how many months of inventory there currently is. Different areas vary but generally speaking anywhere from 4-6 months is considered a balanced market. Anything less than this would be a sellers market because there is not enough inventory to satisfy demand and anything more than 7 months would be a buyers market because there is too much inventory.
If you are selling your home wouldn’t it be nice to know that there is a shortage of homes? This would help you decide how you wanted to price it. Because there are more buyers than homes for sale you could afford to price it higher because the buyers do not have a lot to choose from, and they would be more willing to pay a higher price. Basic economics tells us that as inventory goes down, prices go up.
On the flip side, if you are buying a home it would be nice to know if there is an oversupply of home so you can afford to make a lower offer with the hopes that it might be accepted. Of course the opposite of these two examples would also be helpful to know. The bottom line is that knowing what kind of market you are in will help you determine what type of offer you make on a home.
Appraisers go through this same type of thinking when performing and appraisal. After we analyze recent closed sales, active listings, and pending sales, we see if there is a shortage, balance, or oversupply of homes because this can help us determine how we reconcile the final opinion of value. A shortage of homes would be good support for the upper of end of the adjusted value range while an oversupply could support the lower end of the range.
Expired Listings
Like active listings, expired listings can also give us insight into how the market feels about the pricing of homes for sale. It’s been said that pricing is the most important factor in why a home doesn’t sell. If you consider why a listing expired, one of the biggest and most obvious reasons is that it was priced too high and nobody wanted to buy it. By looking at expired listings as reflecting the upper end of the price range we can see what the upper limit of value is for a certain type of home.
If a home similar to the one being appraised was listed for 6 months at $150,000 and did not sell then one of the assumptions we can make is that it was listed too high. You might also consider that the home may have had a odd floor plan or wasn’t in the greatest shape but these types of factors would still come down to pricing because if it was priced right it would most likely have sold but for the lower amount that would reflect its floor plan or condition.
By taking a broader view of the market and looking at these listings, along with the sold and active homes, we can start to get a clear idea of where our subject property might fall within this price range. Sometimes we can look at properties that were listed for a certain price, the listing expired, and it was then listed again at a lower amount. This reduction in list price as a result of market reaction is great information because it shows us the thought process buyers go through which is exactly what appraisers are attempting to measure in order to get an accurate opinion of value for their appraisals.
What are your thoughts on using active and expired listings to help measure market value in an appraisal or to help a buyer decide what they should ask for a property? Leave me a message below and let’s talk.
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Tom, I realize this is an old post but I came across it researching appraisers using the subject property’s expired listing. Is it correct for an appraiser to use an expired listing of the property that is now the subject of appraisal as a way to the true appraised value? I am dealing with an appraiser who states the same property was listed and expired about 9 months ago for $10000 lower than the current contract the buyers now have with the property. He used that as part of his decision to appraise the property $7500 lower than contract price.
It can be used to help understand the story of the property under certain circumstances. If you live in a fast moving market (either up or down) then looking at something 9 months ago can be deceiving, especially if newer active listings and solds are showing something different. You can have seasonal changes as well as shifts in a market where looking at something 9 months old would not even be relevant. I would look at the appraisal and see if more recent sales are telling a different story. I would also look for the most recent sales that would give the most accurate indication of value.
Well said, Tom. Listings do help us gauge the temperature of the market, and sometimes expired listings can tell a story too. On top of what you mentioned, I always check to see how long a property was exposed to the market too. For instance, I have a current appraisal on my desk where the property sold 10 months ago, and the price at the time appears to have been very reasonable. It was exposed on MLS for 50 days or so and it even had multiple price reductions. This is one way I can help see the price was well established at the time and not a quick sale. What is it worth today? Probably a little more based on how the market has moved. We shall see though…
Good point Ryan. Days on market is important as well and something I look at especially if it was a “quick sale” and not exposed to the market for a long time. Sometimes we have to use these types of sales because there are not better but it can help us in the final value reconciliation knowing that if it had been exposed to the market a little longer it might have brought a little higher price.