Monitor the Rate of Absorption. What to do as the market transitions from buyer to seller or seller to buyer. Here is how to moderate your dialogue.
Topic – Talking tough
Mentor – Bernice Ross
- Be able to explain how stock impacts price
- Stock determines who has control
- Frame your discussions based on stock levels
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Kevin: And welcoming back once again our mentor this week, Bernice Ross from Real Estate Coach Radio, in the United States. And Bernice will be one of our stars in the streaming we do live from Inman Connect at the end of January, next year. We’ll tell you more about that between now and Christmas but stay with us. Bernice Ross. Bernice, we’re talking about talking tough and yesterday, you gave us a wonderful insight into understanding where we are in the market.
Kevin: You know, how we frame the conversation with buyers and sellers, depends who really has the control, whether it’s the buyer or the seller. Can we talk a little more today about the rate of absorption and how we can use that to our benefit, to explain to a seller why they need to come to terms with where the markets at, Bernice?
Bernice: Thank you Kevin, absolutely. The rate of absorption refers to how quickly the inventory turns over. If we’re looking at vegetables in the super market, you probably want those to turn over every day, no later than probably every two days. Or if I’m looking at clothing, it might be four times a year. Other kinds of inventory may be on the market longer or shorter periods of time but it refers to how quickly the inventory is being sold. Now, in terms of how to think about these numbers, what you wanna do is begin by saying, okay, how many months of inventory are there in my market in my price range?
Bernice: Let me give you a few examples right now. Assuming that you’re in a seller’s market but maybe it’s transitioning. You have five months of inventory in the market and you know, once you get over five months, when you get to six, to seven months here in a transitioning or possibly a declining market that is going through the transition from sellers to buyer market. But assuming you have five months of inventory, what they means is that it would take five months for all the inventory to sell if nothing else came on the market.
Bernice: In that particular situation, I’d like to talk about it in terms of the probability of selling. Mr. and Mrs. Seller, the probability that you will sell this month is 20%. We’ve got five months of inventory, five into 100, is 20. 20% of the properties will sell. The probability you will not sell this month is 80%. If we have three months of inventory, then that means 33% of the homes will sell this month, 67% will not sell.
Bernice: If you’ve got three months of inventory, you’re in a blazing hot seller’s market but even in that case, properties stay on the market when they’re not priced right. 33% will sell, 67% will not sell. If you’re having this discussion in say you’re sitting in a listing appointment, let’s assume that there’s five months of inventory, so the probability they’ll sell is 20%,
Bernice: The probability that they won’t sell is 80%. Heres what to say; Mr. And Mrs. Seller, you now have an important decision to make. Are you going to position your property so that you will be in the top 20% of the properties that will sell this month, or we position your property where it will be in the 80% that will still be listed or on the market next month? It’s your choice. What would you like to do?
Bernice: What you’re pointing out here, even in a fairly strong market, is 20% of the properties … that percentage is gonna sell this month. 80% are still gonna remain on the market.
Bernice: And also, notice that I did not use where to price their property, but to position their property, which is a way of competing or looking at how they’re competing against the other properties on the market and they need to be positioned in that top 20 to 25%, give or take a little in terms of value and price. And if they’re not, they’re still gonna be on the market, so they’ve gotta get the top 20%. It’s not enough to be average priced. You’ve gotta be in the top 20% to sell that month and that stays true every month if that number is five months of inventory.
Kevin: Yeah, so you can see a very simple number, which is the amount of inventory on the market now can help you demonstrate the importance of positioning as Bernice said. They’re positioning their property to sell and making sure that it gets into that 20 or 25% of properties that will sell. Great questioning. Bernice Ross, is our guest all this week. Tomorrow, another one of the compelling conversations you can have with a buyer and/or a seller who says to you, maybe we should wait. Maybe if we just hang around a little longer. Bernice will join us tomorrow morning to talk about that. Thanks Bernice. Talk to you then.
Bernice: My pleasure. Thank you Kevin.