Educating Your Sellers By Knowing Your Numbers

absorption rate days on market hppi real estate coaching realtor tips Jan 02, 2020

Have you heard of the HPPI? Probably not, which means your clients almost certainly haven't. It is a statistic that measures the difference in appraisal value from a professional appraiser, and the expected list price of a home. Over the years, homeowners have at most times, valued their home more than an appraiser did. But that is not always the case. Take a look below:

* A positive value represents appraiser opinions that are higher than homeowner perceptions. A negative value represents appraiser opinions that are lower than homeowner perceptions.

A median-priced home in Chicago is $270,000. Realtors there are likely struggling with their clients, because they haven't adjusted their clients expectations on likely selling price. If appraisers value homes there 2.12% lower than homeowners, that means homeowners think their homes are worth $275,000 and appraisers think it is more like $265,000. Not the end of the world. But switch to Los Angeles, and have that kind of discrepancy, and you have bigger differences, into the $15-$25,000 range. 

Obviously, your clients are going to self-educate themselves as best they can, but the HPPI suggests some do it better than others. That's where a good Realtor comes in.

Knowing your numbers at all times is one of the top 5 skill sets a Realtor must have. Armed with the proper knowledge, including median list price vs. sold in a neighborhood, monthly supply of homes, price per square foot and median days on the market, an agent can help the homeowner set the correct listing price. Setting the correct price is 80% of the battle in getting the home sold.

Do you know how to calculate the absorption rate in your market? The rate is calculated by taking the number of homes sold in the given time frame—say, over 30 days—and dividing that number by the total number of available homes in the market. 

Let's assume in a hypothetical housing market, there are 1,000 homes available for sale. Since we're in a seller's market, 250 of those homes quickly sold in just a month's time. The absorption rate in this market is 25%, which is the rate you get when you divide 250 by 1,000. 

 To give another example, there's a housing market with 2,000 homes available for sale but only 50 homes have been sold over the last 30 days. In this case, the absorption rate would be 2.5%—50 divided by 2,000. 
Housing markets with an absorption rate that equals more than 20% are considered to be seller's markets. On the other hand, those markets with an absorption rate lower than 15% indicate a buyer's market.
You can see how knowing your numbers will position you as a go-to source in your neighborhood or city. SHARE this knowledge via email blasts, social media and in-person. Know how to put these concepts into layman's terms that anyone can grasp. Know how these numbers actually impact your market. Is a 1% difference in that HPPI score above significant? In most cities, the answer is "no". Is the fact that perceptions have shifted to where nationwide, appraisers are valuing homes below what homeowners do? That answer is wholehearted "yes."
Have you considered joining the Dollar Coaching Club? Try it out for 30 days.
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