Days On Market or ‘DOM’ is one of the most critical metrics in the California real estate market.
New flippers to the game underestimate it – experienced ones are utterly obsessed with it.
While many investors focus heavily on things like purchase price, renovation costs and ARV, experienced operators appreciate that time is money.
That is why DOM, effectively your time and money, is one of the most expensive variables in the flipping equation.
DOM affects the true profitability of every project, particularly when using private or hard money loans which accrue monthly interest.
In a real estate market as competitive as California’s, small changes in buyer demand or interest rates can dramatically extend selling timelines.
This can prove a disaster for flippers.
How ‘days on market’ is measured
Days on market represents how long a property actually sits on the market before going under contract.
That makes it a direct reflection of buyer demand, pricing accuracy and market conditions.
If one of those three metrics is not favorable, DOM can quickly blow out beyond expectations.
Importantly, DOM varies significantly depending on the location due largely to:
- demand
- inventory
- affordability
- job availability
- buyer demographics
Generally speaking, high demand coastal properties in bigger cities sell quickest while suburban, inland and rural properties have longer DOMs.
High-demand urban centres
The combination of a lack of supply and high-income buyers sees the median DOM for the Bay Area as low as 8-14 days.
Coastal properties in the South Bay such as Manhattan Beach and Redondo Beach have a median DOM of 15-25 days which is similar to San Diego’s.
Westside coastal markets such as Venice Beach, Santa Monica and Pacific Palisades typically stretch out to 42 days because of their higher price points.
Suburban growth corridors and secondary metros
This includes locations such as the Inland Empire, Sacramento suburbs, East Bay outer suburbs and commuter towns in the Central Valley.
They tend to have longer DOMs because of greater supply and buyers being more price sensitive.
These regions are highly reactive to market fluctuations and buyer affordability.
Central Valley properties sell the quickest with a median DOM of 22 days.
Southern California properties extend to around 25 days while Inland Empire homes have a median of 38 days on market.
Rural and remote areas
Days on market becomes even more critical for flippers in these locations which include far north California, rural Central Valley counties and mountain or agricultural communities.
Far north properties have a median DOM of around 35 days but lifestyle markets in more remote locations can take between 45-60 days to sell.
Smaller population density, the reliance on retirees or niche buyers, limited job prospects and custom homes often with vast acreage make this the most challenging sector of the market to sell quickly.
Why DOM matters more to flippers than homeowners
Days on market has a much greater financial impact on flippers than it does on homeowners.
When a renovated property remains unsold for something like 60 days, it can wipe out a flipper’s profit margin.
That’s because unlike homeowners, flippers bare the expense of:
- hard money interest
- holding costs
- insurance
- property taxes
- utilities
- opportunity cost
A longer than anticipated DOM may also force a flipper into an undesirable exit strategy to repay the loan.
How California’s unique market dynamics affect DOM
There are multiple factors that influence days on market in California and many of them remain beyond the control of flippers.
Price – luxury homes or expensive renovations generally experience longer DOM than entry-level homes or basic renovations.
Mortgage rate volatility – when rates rise, affordability drops and the buyer pool shrinks sending DOM north.
Buyer affordability shifts – Other key factors to influence buyer affordability and in turn days on market are house prices, wage growth, downpayment requirements and skyrocketing insurance premiums.
Seasonal demand cycles – while not controllable, these are at least predictable. Spring is the selling season with DOM between 20-40% lower compared with winter.
Local housing supply – when supply is tight such as in the Bay Area and Silicon Vallley, median DOMs can fall to around 10 days. But when supply is in abundance, the opposite is true. New constructions may also compete with flips by flooding supply and increasing DOM.
Neighborhood-level demand – This is critical to understand in California where demand for real estate can vary significantly across very close proximities for reasons such as amenities, schools, safety and lifestyle. That’s why it is so important to have a thorough and up-to-date understanding of target markets.
Managing DOM risk
There are a number of ways experienced flippers manage and mitigate DOM risk.
Know your market – Knowledge is power. Research recent comparable listings and sale timelines before committing to any purchase.
Price aggressively – Use that knowledge so you can price to sell. You don’t want days on market adding up because your property is overpriced.
Observe trends – Choose renovation styles that match current buyer trends and please the taste of others, not necessarily your own.
Don’t overcapitalize – Avoid improvements that stretch beyond the wants and needs of the neighborhood.
Budget wisely – Always incorporate extra holding time into your business model to allow for unforeseen delays.
Why DOM assumptions are important to lenders
Lenders like getting paid on time.
They want confidence and evidence that a property is likely to sell within the loan term.
Risk makes lenders nervous.
That’s why when a flipper applies for a hard money loan to renovate a property, DOM is one of their core metrics.
Renovations in markets with lower DOMs give lenders greater confidence that a loan will be repaid before it matures.
When considering the merits of a loan application, lenders will assess:
- DOM trends
- absorption rates
- inventory levels
- price reductions
- comparable listing durations
They will also evaluate realistic ARV timelines, market demand for the property type and one of the biggest factors to impact DOM, the borrower’s exit strategy.
A well-planned multiple-tiered exit strategy rarely fails.
Get funded and supported today
Ultimately, market liquidity has a huge impact on project risk.
When economic conditions reduce liquidity, days on market rises along with risk levels.
Experienced flippers and developers always factor DOM assumptions into their deal analysis before buying, adding in a reasonable buffer to absorb any setbacks.
It’s the smartest way to ensure the success of their project and deliver them a handsome profit.
If you’d like to know more about how to reduce your days on market and increase your turnover, a chat with the experts at Equidy is a must.
Equidy has an intimate and personal history with all aspects of property development in California and has done so for well over 40 years.
They will happily act as your mentor, advising you about liquidity pockets that offer unique opportunities to help you maximize the return on your investment without putting yourself at unnecessary financial risk.
And here’s the best part.
Equidy is also a hard money lender that can finance flippers and developers in as little as 48 hours.
It makes them the ideal partner and mentor for every flipping project, from San Clemente to San Bernardino.
They stand by their core belief that anything is possible and they strive to prove it every single day.
Even in difficult economic times, they are determined to reward entrepreneurship and resolve to help their clients realize their wealth creation dreams.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimize the risk to all parties.
Contact Equidy today to book your free strategy call.
