Doing the Time Warp with Real Estate Market Data

By Richard Barrington
LoanPage.com Columnist

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It's a real estate market trend that Einstein would have applauded. Or maybe not. Time can appear to be elastic in the real estate market due to the practice of resetting the "Days On Market" (DOM) statistic to make property listings appear newer to the market.

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Is this ethical? That's open for debate, but what is certain is that the practice gives sellers an edge. If you are looking to buy a property, you may need some professional assistance to help overcome that edge.

What the DOM Statistic Might Mean for the Buyer

For prospective buyers, there are ideally a number of ways to use the DOM statistic as a tool to analyze the real estate market in general and specific properties in particular:

» A property which has been on the market for a long time might have problems which only become apparent upon on-site inspection, such as a freeway running through the backyard or structural problems in the foundation.
» A stale DOM statistic might indicate a property is overpriced. If the real estate news indicates that the housing market is reasonably fluid, then a property that is slow to sell may have too high a price tag. Prices are set by markets, and if no other buyers in the real estate market are biting on a property at the offering price, then chances are neither should you.
» A stale DOM statistic might signal that you have some negotiating leverage, because a seller can become impatient with a property that won't move.

In a broader sense, your preliminary research on overall real estate market trends should consider the average DOM for your area so you can assess how hot or cold the housing market is. These averages are often reported in local real estate news sections and realtor web sites. If properties are moving quickly, you will know to act aggressively. If properties are sitting on the market for more than 60 days, you can shop more carefully and hold out for the best deal.

Housing Market: The Flaw in the System

19th Century British Prime Minister Benjamin Disraeli is widely quoted as saying that there are three kinds of falsehoods: "lies, damned lies, and statistics." When it comes to the DOM statistic, Disraeli would have been right on the money. Although this statistic ideally has many uses, it has been widely manipulated by relisting properties--a practice that sets the DOM statistic to zero.

Carol Lloyd, who writes a real estate market column called "Surreal Estate" for the San Francisco Chronicle, describes the practice as "the real estate equivalent of turning the odometer back to zero." Yet Lloyd acknowledges that the practice is widespread, as many professionals consider it ethical because it serves the best interests of their clients who are trying to sell properties.

Ethical or not, the practice of resetting the DOM statistic by relisting properties is a significant real estate market trend--enough so that some communities are taking action. In Florida, listing rules were recently changed so that a property must now be off the market for 60 days before it can be relisted. In California's Silicon Valley, the requirement is 30 days.

Still, these actions are more evidence of the problem than indications of a solution. Differing rules from area to area simply make it more difficult for the uninitiated to interpret DOM data. It is a statistic that clearly belongs on Disraeli's list of falsehoods.

DOM Manipulation Getting Worse

A cooling housing market makes manipulation of DOM data more significant, as more and more houses are staying on the market for a long time. Of course, if your local real estate news source relies too much on DOM data, you might never know that the housing market was cooling, but more objective data indicates that it is.

For example, the U.S. Census Bureau released figures indicating that new home sales dropped 20% in January of 2007 compared to the previous year. This means that the balance between supply and demand is shifting, and more properties are spending significant amounts of time on the market. You might not know if that is true of a property you are looking at if the DOM statistic was reset.

In this environment, the assistance of a qualified real estate agent might make all the difference. If the information available is flawed, it might take someone who knows the local real estate market--and often the individual properties on that market--to help you assess the relative strength of buyers and sellers.

In the information age, we often feel we have access to enough facts to do everything for ourselves. Unfortunately, as the manipulation of DOM data demonstrates, sometimes information is no substitute for experience. As a prospective home buyer, you may want to seek the help of a professional with experience to help asses the market.

Sources
U.S. Census Bureau
San Francisco Chronicle: New Life for Old Listings
Realtor Magazine: No More Hiding Days on Market by Relisting

About the Author
Richard Barrington is an author and freelance writer. He spent over 20 years as head of client services and corporate communications for Manning & Napier Advisors, Inc., an independent investment advisory firm. He holds a BA in Communications from St. John Fisher College and earned a Chartered Financial Analyst (CFA) designation from the CFA Institute.

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