Know Your "D.O.M." – Days on Market

Before you can nail down the price of a home you want to buy, or price a home you are looking to sell, you need to look at comparable sales or “comps”.  However, most novices don’t look at comps in their proper context, that is, in relation to the amount of time it took to sell (“Days on Market” or “D.O.M.”).

For example, a market in which a house sells for $250,000 in three weeks is quite different from a market in which the same house sells in six months (the latter is known as a “soft market”). In a soft market, sellers can either drop prices, give concessions, or wait longer for their houses to sell. The concessions factor is important because it will allow you to calculate the “net” sales price.  This is particularly important if you are using new builder homes as your comparable sale.

You can find out the days on market for a home, as well as the average time for similar homes in a neighborhood by asking a real estate broker to search through the multiple listing service (“MLS”).  Make sure you’re comparing apples to apples—that is, the average days on market for houses in the same area and in the same price range. If the broker has access to the right information on the MLS, you can compare renovated versus non-renovated homes to get a more detailed analysis, as well as concessions offered on the comparable sales.

Warning: Watch for this Listing Trick

Because an old listing can spell trouble for a seller who doesn’t want to appear too motivated, real estate brokers often cancel listings, wait a few weeks, then re-list a property that hasn’t sold. Make sure you take this possibility into account when you’re analyzing days on the market data.

 Once you know you know your DOM for your comparable sales and for the neighborhood in general, you can get a realistic idea of what your house is worth and will sell for within that same time period.  The more information you have, the more accurate your assumptions about the market will, and thus your investing plan will be more solid.

Excerpt from “Defensive Real Estate Investing” Available from Amazon.com