Timeframe and Listing Status

Two further decisions frame the search: the period the sales will come from, and which listing statuses will count as evidence. Each is easy to skip in favor of running the search, and each determines what the search returns.

The sales timeframe

The period from which sales are drawn determines how well they reflect the current market. The rule comes from Fannie Mae’s Selling Guide (B4-1.3-08): “Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales.” An older sale that is the best indicator may be used where that is appropriate, as in a rural area with little sales activity, with an explanation and a market-conditions adjustment. The most recent sale generally reflects the current market most closely, and an older sale that supports a higher price does not ordinarily outweigh more recent sales of similar properties. The CMA is built on that rule: the search covers the past twelve months, the most recent and most proximate similar sales are relied upon first, and an older sale is ordinarily used only where it is the best indicator, with the reason stated and the market’s movement since its contract date applied. Ordinarily the direction of the market is characterized first, before the search reaches back in time, because a rising market and a declining market call for opposite treatment of an older sale.

The contract date places the sale in time

The date that places a sale in the market is the date of the contract, because that is when buyer and seller agreed on the price. Closing follows the contract by weeks in a typical financed purchase, and by longer where new construction or a contingency is involved, so a sale that closed in May may reflect the market of March or April. The contract date is the date the contract was signed by both the buyer and the seller. The listing agent records that date in the contract date field of the MLS record, and that entry is what the analysis uses; the date the listing’s status was changed to pending is not the same thing, because the status change can be made days later. Where the MLS record does not show a contract date, the closing date is used and the analysis notes that it was. In a market that is moving, the difference matters: a sale that closed five months ago on a contract signed seven months ago is a seven-month-old reading of the market.

Reading the direction of the market

The direction and pace of the market are read from the subject’s own segment: properties of the same type, in the same size and price tier, in the market area. Where the segment is too thin to read, it is widened by price tier or by area until a trend can be seen. The segment’s sales are grouped by period, usually by quarter, and read for price level, days on market, and the ratio of sale price to list price. Price levels by period are read with care, because the mix of houses that sells changes from quarter to quarter; the sale-to-list ratio and days on market support what the price levels suggest.

Every measure moves the same way: prices higher, time on market shorter, buyers paying above the asking price. This is a rising market, and a sale from the first quarter sits below the level at which the market now sells. It may still be the best comparison for the subject; it is used with a note that the market has risen since its contract date and that its price is adjusted upward to reflect today. In a declining market the same sale would sit above today’s level and the note would run the other way. In a flat market, where the measures hold steady from quarter to quarter, an older sale stands closer to current, and the note says so.

Listing status

Each status on the MLS serves a different purpose in the analysis. Closed sales are the evidence of value: a closed price is what a buyer actually paid and a transaction actually settled at. Pending sales show current demand; a buyer and seller have signed a contract, but the contract price is unknown until closing, and the transaction may not close at all. Pendings are read by the number of new pendings each month compared with the same months last year, the days to contract, whether the price was reduced before the contract, and the list price at contract. Where several pendings are listed above the recent closed sales, that may be an early sign of a rising market, to be confirmed when they close. Active listings show the competition the subject will face on the day it is listed, at prices sellers are asking; they show where in the range the subject should be positioned to draw attention in its first two weeks. They are not counted among the closed sales that set the range; they support where the price is positioned. An expired listing is one whose listing agreement ran out without a sale. It went the full listing term without going under contract, at its original price and at any reduced price along the way, which generally means buyers were not willing to pay those prices during that time. The listing history shows each price it was offered at and how long it sat at each one. That makes it useful when a seller proposes a figure close to one of those prices. A withdrawn listing was taken off the market before its agreement ran out, and says less about price.

Two details of the MLS record bear on how these statuses are read. A pending listing is generally shown at its list price, and the contract price becomes known only when the sale closes; a pending therefore shows that a buyer went under contract while the property was listed at that price, not the contract price itself. And a property that was withdrawn and relisted can appear as a new listing with a fresh count of days on market; the listing history shows the full time the property was exposed and every price at which it was offered.

The analysis is built on closed sales and positioned against the actives and pendings. That sentence states the rule, and much of the analysis depends on it.

How it applies. These two decisions can be read off a CMA in a minute. Are the sales from the past twelve months, with the most recent and most proximate similar sales relied on first and any older sale explained? Are closed sales carrying the range, with actives and pendings shown as position? A CMA that answers yes to both has its frame in place; one that does not is ordinarily completed before it goes to a seller.

A seller of a 1,900-square-foot colonial proposes $575,000. The most recent closed sales of similar houses in the market area, verified and adjusted, support a range of $525,000 to $545,000. Two pending sales of similar houses are listed at $535,000 and $549,000. Three actives compete: one at $559,000 with 41 days on market and one reduction, one at $565,000 with 63 days, and one at $539,000 listed last week. A similar colonial on the next street expired in the spring at $569,000 after 120 days. The closed sales carry the range. The expired listing did not sell at $569,000, a figure close to the seller’s, during its 120-day listing term. The actives show where the subject would sit: at $575,000 it would be the highest-priced house among competitors, one of which has gone 41 days and been reduced once, and the other 63 days, without a contract at prices buyers have not yet accepted; at $539,000 to $545,000 it would stand beside the newest listing and the pendings. The range remains $525,000 to $545,000, and the listing status data guides where within it the list price is positioned.