In 2017 we began a new feature on our blog called Ask the Agents. Since then, we have answered many, many questions from clients, friends and perfect strangers. This is our 20th installment of questions and answers.
Question: What is a sellers’ market?
Answer: Typically, a sellers’ market is one in which there is six months of inventory or less. It is a loose and not-very-helpful term for a real estate market like River Oaks, where seller and buyer motivations, and especially sellers’ ability to hold out, set it apart from the general Houston market. By contrast, a buyers’ market is typically 12 months of inventory or more. Between six months and 12 months of inventory is commonly described as a balanced market. Again, despite being frequently used, these terms are not always helpful when applied to a real estate market like River Oaks.
Question: How is “months of inventory” calculated?
Answer: Months of inventory, or months of supply, is the number of houses currently for sale divided by the average number of homes sold per month. Here’s an example: Let’s say we’re interested in knowing the supply of homes in the $3MM to $4MM range. For the sake of our exercise, let’s say that in the past year 17 homes have sold in this price range. We divide 17 by 12 to get an average of 1.416 homes a month have sold. If 22 homes in this price range are currently on the market, 22 is divided by the average of 1.416 and we find we currently have 15 months of supply. Just remember, for a market like River Oaks, the market price sector can make a huge difference to this statistic. Be specific about the price range you are calculating.
Question: What is DOM?
Answer: It stands for “days on the market” and is a way to track how long a property has been listed for sale on MLS. A house that shows a DOM of 90, for example, has been for sale for 90 days, or about three months. DOM can be applied to individual properties, or it can be crunched into a numerical average for a certain market sector. In addition, we use the acronym DOMSLPC, which stands for “days on market since last price change.” It’s another way to closely track a property and examine smaller slivers of data – e.g., have online viewings increased or have there been more showings during the current DOMSLPC?
Question: Can I make a low-ball offer on a house I think is over-priced?
Answer: The more typical question is from sellers who ask: “If my property is overpriced, why doesn’t anyone make me a low-ball offer?” We could respond that buyers in Houston are too polite. The real answer is that the only reason a buyer puts an offer in writing to purchase residential real estate is because they are afraid someone else will do so.
Question: What is a hard money loan?
Answer: A hard money loan is a kind of short-term loan that is typically used for a real estate transaction. It is secured by real property and not based on the borrower’s credit score, and the lender is typically an individual or company rather than a bank. Hard money loans are sometimes used as a short-term bridge loan, and they are often thought of as a loan of “last resort.” They are sometimes sought by property flippers.