I grew up hating math, though I always got good marks in it. I just didn’t feel like I completely understood it the way I did English and history, even though I could do the work and apply the rules with the best of them.
Then, early in college, I had an amazing teacher who converted me into a lifelong math lover. And it sure has come in handy, especially in my real estate dealings (and my aggressive retail wheeling and dealing).
In a good turn for the market, I’ve seen a much higher appetite for data among the buyers and sellers who are seeking to make wise real estate decisions. And I’ve seen the pros meet this demand.
On recent fliers and email newsletters, I’ve seen everything from an agent touting their average listing’s sale price (vis-à-vis the average home sale price, citywide) to a stager providing the data on how much over asking her recently staged listings sold for.
I recognize that some people have never quite recovered from their early educational math dramas and traumas. Fortunately, that doesn’t have to mean that you can’t take advantage of this new era of data-driven decision-making.
Here are five simple steps even the most math-averse house hunter, home seller or refi-seeker can use to make fully informed real estate decisions, based on the numbers:
1. Use the right numbers and ONLY the right numbers. One of the reasons math-averse folks shut down in conversations about real estate data is sheer overwhelm: percentages; rates; charts; graphs; timelines; quarter-over-quarter vs. year-over-year; the mathy jargon; the unfamiliar concepts; and the sheer scariness of all those digits (millions and even billions of dollars, depending on the stats being discussed) is so far outside the comfort zone of the average homebuyer who hates math that it seems completely daunting to even go there.
Shatter this scariness by simply focusing on a tiny set of data points: only the numbers that count, and that have true relevance to the actual decision you’re trying to make.
Generally that means you’ll be focused on local numbers only (more on that later.) Also, that means you need to maintain laser-beam clarity in your own head on what decision you’re actually trying to make in any given moment!
So, for example, if you’re trying to decide how much to offer for a particular home, other than your own personal mortgage and financial tolerances and how much you want it, you may only need to know:
- how long the home has been on the market.
- how many offers you’re competing with (if any).
- how long an average home in the neighborhood stays on the market.
- how much very similar homes have sold for in the last few months, generally, and as relative to their list prices and the number of multiple offers.
2. Get the pros to serve you up the numbers. Whatever you do, do not rely on national newspaper headlines or the latest two-minute analysis on cable news for your decision data. At its best, this information is designed for economic analysis, not personal decision-making; at its worst, it’s designed to spark outrage and generate hyperbole.
Fortunately, local real estate brokers, agents, mortgage pros and even real estate associations are delighted to provide you with this information. Get referrals to agents and mortgage pros whom your friends and family members trust and ask them to provide you with the information you’re looking for (they’re usually happy to suggest what data you should use and explain why), and Google the name of your town or county and the words “association of realtors” to find websites that offer untapped treasure troves of local market data, usually for free!
3. Remember that everything is relative. Knowing how long your target property has been on the market has no value to your purchase-offer decision-making if you don’t know how long homes in that neighborhood usually stay on the market. If the average days on the market (DOM) in an area is five months, then the sellers of a home that has been on the market for one month might not be ready to drop the price yet; by contrast, if a neighborhood’s listings usually move off the market in 10 days or less, then many sellers will be considering a price reduction by one month.
As a general rule, every time you consider a piece of data about a particular home, you must consider it in the context of what the average number is for homes in that area for the data to have any real meaning. When an agent tells you what the list price is, how long the place has been on the market, or recommends a list or offer price, you should always ask, “What’s the average for similar homes in this area?” and compare.
4. Make sure comparables are truly comparable. I’m sure you’ve heard the old Mark Twain saying about how deception can be categorized into “lies, damned lies and statistics.” While most agents out there are busting their humps to help people make smart decisions, the occasional bad apple may try to twist the data to support their position or get you to do what they want you to do.
To make sure that you’re comparing apples to apples, always get the source material for any sort of comparable sales data or “comparative market analysis” you’re given, and flip through it to make sure the listings the numbers are based on actually are in fact similar to and nearby the “subject property” (i.e., the home you are trying to buy or sell). As well, check to be sure the listings and sales are very recent — from within the last six months at the outside, and more recent is better.
5. Avoid rules of thumb. I’m constantly receiving emails from readers asking for a good rule of thumb for using data to drive any and every sort of real estate decision, whether they’re trying to set a list price, counter a counteroffer or decide when to lock their interest rate. But the real deal is that, in real estate, everything is hyperlocal. This means that not only is a rule of thumb here in the San Francisco Bay Area inapplicable to a market in Minnesota, a rule of thumb on one side of town might be entirely inapplicable on the other!