How Does the Number of  Days on the Market Affect the Selling Prices of Homes - A study of the facts in Lexington Kentucky - Zip Code 40504

This is the second part in what is intended to be a 7 part series studying the affect that "Days on the Market" has on the selling price of homes in Lexinton Kentucky.  The first blog post studied Zip Code 40503

The purpose for these next series of articles is to research how the original listing price does or doesn't affect the selling price of a home.   We read and hear Realtors that setting a high price can lead to a low selling price.  Is that true here in Lexington?  When I do listing presentations I show my clients how listing prices correlate to selling prices in their area.  However to my knowledge there is no systematic study of that correlation in Lexington.

My goal over the next 10 days is to look carefully at the primary zip codes of 40502, 40503, 40504, 40511, 40514, 40515, and 40517.  I will analyze each zip code and see if the statistics will reveal anything of significance.  The study will include only single family residences with selling prices between $10,000 and $999,999.  In all of Lexington this past year there were only a handful of homes that sold for more than a million dollars.

My conclusions about Zip Code 40504 are listed first followed by the information that supports them.

•  Realtors must be careful not to generalize about "Days on the Market" having an adverse affect on prices.  This confirms the data found in 40503.
• Sellers need to determine if waiting to sell their home for a greater price after an additional 124 days is worth the risk.  It appears at least in the lower priced homes it may be well worth the wait in Zip Code 40504.
• Fewer than 25 % of homes sold for more in the longer time in 40503.  In 40504 sixty % sold for more when on the market longer than 90 days.  The disparity between Zip Codes may be affected by the large number of rental properties in 40504.  Could it be the properties are listed for much more than the real market value originally and "investors" are not getting the "bargains" they expect?

• The active homes on the market is still sufficient it seems to get a good value, however the number is much smaller than in 40503 and a majority of these homes may be rental properties.  Therefore waiting to get a "bargain" may not be wise.
  

This study is for the Zip Code 40504.
Geographic Data: 

•      The area extends Southwest from Red Mile Road mostly between Versailles Road and Leestown Road to New Circle Road.
•      40504 meanders a bit west of New Circle Road in the norther part and a bit east of Versailles Road before reaching Red Mile Road.
•      New Circle Road is an average of less than four  miles to downtown Lexington which makes it a natural landmark.  Homes within "The Circle" are generally desired by people wanting to live "close to the action."  

Detailed Profile Estimated (2008) Data for Zip Code 40504:

• Population - 28,835
• Houses and Condos - 11,6665
• % of renters - 56
• Estimated Real Estate Tax - 1.1, $755
• Annual Household Income = $36,889
  

The table below shows how I broke down the prices into certain increments.  All numbers are from The Lexington Bluegrass MLS on 02/01/2010
Before analyzing these numbers there are other factors to consider.

1.      There are 80 active listings for 40504 and 45 of those have been on the market more than 90 days. The average is 175 days.
2.      There were 63 properties which were expired, withdrawn or deleted during this time frame. Of course many of those are back on the market and would be also be include in the current active listings.  
3.      The average days on the market for all of 40504 for the homes selling in fewer than 90 days was 32.1 days.  Those on the market more than 90 days sold in an average of 156.14 days.  How much money does it cost to keep a home on the market an additional  124 days? That is an important question to present to home owners.

So, what is significant about the numbers in the chart below about 40504?

1.     There is no direct correlation between days on the market and price in 40504 which was true of 40503, but there are some trends worth exploring. 
2.         Deduction:  Be careful about generalities.  Sweeping statements about price and days on the market cannot be supported by the facts in this area code.
3.     Homes that sold for more when on the market longer than 90days, adding columns 2,5,6,7 and 8 totalled 87.
4.     Homes that sold for more when on the market fewer than 90 days, adding colums 3 and 4 totalled 58.
5.         Deduction:  This zip code is much lower income and has a much higher pecentage of rental properties than 40503.  Upon closer review of the lowest priced homes it was clear they were REO or auctioned properties.  Could it be the original listing prices were set much higher than the real market value and investors did not get the "great bargains" they assumed.  One house for instance was set at a price of $107,900 and it sold for $43,450.  This looks like a "great bargain" but was the original price unrealistic?  It seems logical to me that there was significant price listing disparity in the $10,000 to $120,000 dollar range.  Investors beware!    
6.    There is no obvious difference because of price range.  The lowest priced homes and the highest priced sold for more than the middle priced homes.